THE  AUTHENTIC  HISTORY  OF 


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THE  AUTHENTIC   HISTORY  OF 

The  United  States 
Steel  Corporation 


HON.  ]':LBERT  II.  GAliY 


''The  History  of  the  Unilcd  S/d/cf;  Sled  Corpnniliim   /,  Ihc  dorii  of  how  Gary 
carried   out  kin  drra}ii." 


THE  AUTHENTIC   HISTORY  OF 

The   United  States 
Steel  Corporation 


BY  ARUNDEL  COTTER 


New   York 

The  Moody  Magazine  and  Book  Company 

1916 


Copyright,  191 6,  by 

The  Moody  Magazine  and  Book  Company 

All  Rights  Reserved 


THE  LIBRARY 

UNIVERSITY  OF  rALIFORNTA 

SANTA    BARBARA 


To  The 
HON.  ELBERT   H.  GARY 

CHIEF  EXECUTIVE  OFFICER 
OF    THE 

United  States  Steel  Corporation 

This  Work  is  Respectfully 
Dedicated 


FOREWORD 

It  is  not  the  intention  of  the  author  of  this  History  of 
the  United  States  Steel  Corporation  to  compile  a  work 
of  reference  for  the  steel  man.  Such  a  task  must  properly 
be  left  to  the  trade  expert.  His  object  merely  is  to  narrate, 
in  as  interesting  a  form  as  he  is  able,  the  principal  events 
leading  up  to  the  incorporation  of  the  mighty  company, 
to  tell  its  objects  and  its  policies  and  the  results  therefrom 
on  labor,  the  corporation  itself  and  industry  generally. 

The  writer  believes  that  these  events  contain  a  consider- 
able amount  of  human  interest,  and  it  is  in  this  form  that 
he  has  endeavored  to  relate  them.  If  he  succeeds  in  bring- 
ing home  to  the  steel  stockholder,  to  "the  man  in  the  street," 
what  the  Steel  Corporation  has  stood  for,  what  it  still  stands 
for,  his  labor  will  not  have  been  in  vain. 

A  very  large  part  of  the  facts  narrated  were  obtained 
from  the  sworn  testimony  in  the  Government  suit  for  the 
dissolution  of  the  Corporation.  The  whole  story  of  the 
big  company  is  contained  in  this  mass  of  testimony,  but 
the  form  in  which  it  is  there  told  is  too  lengthy  and  com- 
plicated, too  full  of  repetition  and  technicalities,  to  interest 
any  but  the  legal  mind. 

Of  necessity,  in  order  to  confine  witJiin  the  limits  of  a 
single  volume  the  history  of  the  greatest  industHal  enter- 
prise in  the  world,  many  facte  and  events,  interesting  of 
themselves  and  worthy  of  record,  have  been  omitted.  Only 
the  most  saUent  features  have  been  touched  on. 

In  conclusion,  the  author  freely  admits  a  prejudice  in 

favor  of  the  corporation.     He  sincerely  believes  that  its 

organization  marked  the  dawn  of  a  new  and  better  era 

in  industrial  history,  how  and  why  the  reader  will  discover 

in  the  story  itself. 

Arundel  Cotter. 
New  York,  Jan.  i,  1916. 


TABLE   OF  CONTENTS 

Page 

Chapter     1.    Events  Preceding  the  Organization 1 

Progress  of  Steel  Making  in  America.  The 
Soup  House  Days.  Rail  and  Other  Pools. 
Andrew  Carnegie,  the  Iron  Master.  Gary's 
Dream  of  a  Steel  Republic.  Carnegie's 
Endeavors  to  Sell.  Threat  to  Build  Big 
Railroad.  The  Simmons  Dinner  and 
Schwab's  Eloquence. 

Chapter    2.    The  Birth  of  the  Big  Company 17 

Its  Immense  Wealth.     The  Companies  Merged. 
'.-  Overcapitalization — and    Its    Remedy.     In- 
fluence on   Industry;   and  on   Labor.     The 
Higher  Socialism. 

Chapter    3.    Early  History — 1901  to  1907 35 

Physical  Organization.  Profit  Sharing  Plans. 
More  Companies  Absorbed.  Expansion. 
The  Bond  Conversion  Plan.  Laying  the 
Foundations  of  Gary,  Indiana.  The  Hill  Ore 
Lease. 

Chapter    4.    The  Tennessee  Purchase 61 

The  Panic  of  1907.  Conferences  in  Morgan's 
Library.  Assistance  to  the  Trust  Company 
of  America.  What  the  Tennessee  Coal,  Iron 
&  Railroad  Co.  Was.  Difficulties  of  Moore  & 
Schley.  Purchase  of  Tennessee  Stock  Only 
Way  Out.  Interview  with  Roosevelt.  Steel 
Making  Conditions  in  South.  Benefits  of 
Corporation  Ownership. 

Chapter    5.    The  Men  of  the  Corporation 77 

Elbert  H.  Gary,  J.  P.  Morgan,  Charles  M. 
Schwab,  George  W.  Perkins,  and  others. 

Chapter    6.    Development  of  Export  Trade 99 

The  U.  S.  Steel  Products  Co.— James  A.  Farrell. 

Chapter    7.    The  Spirit  of  the  Corporation 117 

The  Square  Deal  a  Foundation  for  Loyalty 
and  Efficiency.  Making  the  Worker  a  Self- 
Respecting  Citizen. 

Chaptkr    8.    The  Corporation's  Implements 129 

Vast  Operations.  The  Ore  Mines  of  the  Lake 
Region.  Some  Impressions  of  Steel  Mills. 
From  the  Ground  to  the  Finished  Product. 


Table  of  Contents 


Page 

Chapter    9.    The  Steel  Towns 145 

Gary — Making  a  Sand  Lot  a  Thriving  City. 
Fairfield,  Alabama.     Other  Steel  Towns. 

Chapter  10.    Safety  First.    Sanitation.    Welfare 157 

Economic  Aspects  of  Conserving  the  Worker. 
How  It  Has  Paid.  The  Humanitarian  Side. 
The  Universal  Safety  Idea. 

Chapter  11.    Questions  of  Policy 171 

Its  Attitude  Towards  Competitors.  The  Gary 
Dinners.  Publicity — a  New  Departure  in 
Corporation  Management.  Question  of 
Price  Restraint. 

Chapter  12.    Investigations  and  the  Dissolution  Suit 187 

Investigations  by  Industrial  Commission,  Cor- 
poration  Commissioner  and   Stanley   Com- 
*>-  mittee.     The  Steel  Dissolution  Suit. 

Chapter  13.    Later  History— 1907  to  1915 203 

Chapter  14.    Statistics,  Financial  and  Otherwise 219 


CHAPTER  I 
EVENTS   PRECEDING  THE  ORGANIZATION 

IF  the  United  States  Steel  Corporation  had  been 
nothing  more  than  the  biggest  business  in  the 
world,  its  enormous  size  and  the  immensity  of  its 
operations  would  justify  the  historian  in  placing  upon 
record  the  details  of  its  organization  and  the  events  con- 
nected with  its  existence. 

The  "Steel  Trust's"  vast  capitalization,  a  billion  and  a 
half  of  dollars,  or  three-quarters  of  the  gold  coin  in  the 
United  States;  its  yearly  turnover  of  three-quarters  of 
a  billion  dollars,  or  the  annual  value  of  the  cotton  crop 
of  the  South;  its  payroll  of  a  quarter  of  a  million  men, 
enough  to  populate  a  good-sized  city — or,  with  their 
families,  over  a  million  souls,  the  population  of  a  town 
that  would  rank  high  among  the  cities  of  the  world; 
its  annual  production  of  over  twelve  million  tons  of  fin- 
ished steel,  some  240  times  the  displacement  of  the  big- 
gest vessel  ever  built,  the  volume  of  freight  carried  on 
its  great  fleet  of  ore  boats,  several  times  the  freight  ton- 
nage passing  through  the  Suez  Canal;  its  foreign  trade 
amounting  to  over  two  million  tons  a  year,  and  of  a 
value  of  nearly  a  hundred  million  dollars — these  alone 
would  make  the  Steel  Corporation's  history  worthy  the 
telling.  But  these  things,  properly  considered,  are  only 
secondary,  and  their  importance  lies  largely  in  the  bear- 
ing they  have  on  something  of  far  greater  consequence 
— the  big  company's  influence  upon  the  industrial  his- 
tory of  the  world.  For  the  organization  of  the  Steel 
Corporation  marked  the  beginning  of  a  new  era  in  in- 
dustry. 

It  was,  in  a  modified  sense,  an  experiment  in  popular 
ownership,  in  the  ownership  of  industry  by  labor,  for  it 


2  The  United  States  Steel  Corpopation 

substituted  for  the  limited  ownership  by  a  few  men  of  a 
number  of  more  or  less  important  industrial  units,  one 
gigantic  unit  owned  by  a  multitude.  Today  the  Steel 
stockholders  number  150,000,  in  round  figures,  and  of 
these  not  less  than  50,000  are  employes  of  the  corporation. 

The  organization  of  the  Steel  Corporation  marked 
the  dawn  of  a  new  industrial  era  in  another  way,  for 
the  big  merger  proved  a  potent  influence  in  putting  an 
end  to  the  period  of  cutthroat  competition  in  steel  that 
existed  in  the  later  years  of  the  nineteenth  century — a 
competition  so  ruthless  that  no  means  of  getting  busi- 
ness from  a  competitor  appeared  to  be  considered  too 
unfair  or  too  ignoble  for  employment — and  substituted, 
if  the  declarations  of  its  competitors  themselves  may  be 
credited,  the  reign  of  a  spirit  of  fair  play,  of  competition 
still,  but  competition  clean  and  above-board  and  gov- 
erned not  solely  by  greed,  as  in  the  past,  but  by  the  new 
principle  of  the  square  deal  between  one  manufacturer 
and  another,  and  extended  to  the  consumer  and  the 
worker  a  recognition  of  the  rights  of  all. 

In  order  to  get  a  true  perspective  on  the  events  im- 
mediately leading  up  to  the  formation  of  the  United 
States  Steel  Corporation,  it  is  necessary  to  review 
briefly  the  history  of  the  steel  industry  in  the  United 
States  during  the  latter  half  of  the  nineteenth  century, 
and  especially  during  its  closing  decade.  In  a  short 
half-century  steelmaking  in  America  had  grown  from 
the  age  of  swaddling  clothes  to  full  manhood,  or  rather 
g^anthood.  It  stood  supreme  among  industries.  From 
being  unimportant  among  the  iron  and  steel  producing 
nations,  the  United  States,  in  a  comparatively  few 
years,  had  forged  its  way  to  the  first  place.  Its  steel 
mills  turned  out  nearly  half  of  the  hard  metal  used  by 
the  world.  Steel,  from  being  an  industry  composed  of 
a  few  scattered  mills  situated  as  near  as  possible  to  ore 
deposits  with  little  regard  to  markets,  had  become  one 
consisting  of  great  corporate  entities  each  made  up  of 
many  plants,  and  these  had  in  their  service  railroads 


Events  Preceding  the  Organization  3 

and  steamships  plying  to  and  from  ore  fields  situated 
sometimes  hundreds  of  miles  from  the  plants,  but 
capable  of  bringing  to  the  mills  such  quantities  of  the 
raw  metal  as  but  a  short  time  before  had  not  been 
known  to  exist.  It  had  bent  to  its  use  every  modern 
invention,  the  newest  discoveries  of  science.  Fortunes 
had  been  spent,  won  and  lost,  in  building  up  these  great 
structures.  But — and  this  is  important — it  had  been  an 
industry  subject  to  the  most  amazing  fluctuations, 
periods  of  feast  being  followed  closely  by  periods  of 
famine. 

It  was  a  period,  as  has  been  suggested,  of  war  to  the 
knife  between  manufacturer  and  manufacturer,  war  in 
which  no  quarter  was  asked  or  given.  The  history  of 
the  steel  industry  in  America  bristles  thick  with  the 
names  of  millionaires  who  worked  their  way  to  fortune 
from  the  slag  pile.  And  for  every  one  of  these  there 
are  many,  whose  names  are  forgotten,  who  sacrificed 
health,  strength  and  fortune  in  the  mad  fight  for  the 
wealth  that  poured  in  unstinted  stream  from  the  glow- 
ing furnaces  of  molten  iron.  The  law  of  steel  was  essen- 
tially that  of  the  survival  of  the  fittest. 

Perhaps  there  is  no  other  great  industry  that  has  been 
so  subject  to  fierce  and  unrestrained  competition  as  steel 
making.  To  understand  why  this  is  so  it  is  necessary 
to  get  an  idea  of  the  abnormal  conditions  influencing  it. 
The  discovery  of  the  Bessemer  process — about  the  mid- 
dle of  the  nineteenth  century — by  which  steel  could  be 
made  cheap  enough  to  permit  of  its  general  use,  found 
a  world  r.iore  than  ready  for  it,  and  the  demand  for  the 
metal  grew  by  leaps  and  bounds.  The  Age  of  Steel  did 
not  dawn ;  like  the  tropic  day,  it  broke  with  fierce  glare. 
The  sudden  demand  naturally  opened  up  vistas  of  pre- 
viously undreamed-of  wealth  for  those  who  could  supply 
it,  and,  in  ire  desire  to  secure  this  wealth,  production 
sprang  forward  so  quickly  as  even  to  outstrip  the  de- 
mand, strong  as  it  was.  Then  ensued  the  inevitable 
battle  for  the  spoils,  a  battle  that  lasted  until  consump- 


4  The  United  States  Steel  Corporation 

tion  took  another  spurt,  which,  in  turn,  resulted  in 
quickening  output  and  a  resumption  of  the  battle. 

At  that  time  the  country  was  just  opening  up.  Rail- 
ways were  stretching  their  lines  into  the  golden  regions 
ot  the  West ;  manufacturers  of  farm  implements  were 
calling  for  steel  to  be  fashioned  into  tools  to  reap  the 
rich  crops  of  the  wide  prairie  lands ;  inventors  were 
each  day  evolving  some  new  use  for  the  metal.  Was  it 
any  wonder,  then,  that  steel  became  a  world  necessity 
and  that  the  blast  furnace  became  a  philosopher's  stone 
that  transmuted  the  dull  ore  into  precious  gold?  More 
and  larger  fortunes,  it  has  been  truly  said,  were  made 
out  of  steel  in  the  second  half  of  last  century  than  ever 
came  out  of  the  mmes  of  the  West  or  the  diamond  mines 
of  South  Africa.  And  in  the  insane  struggle  for  this 
so-freely-poured-out  wealth  men  lost  all  sense  of  pro- 
portion. 

It  was  inevitable  that  there  should  be  a  dark  side  to 
the  picture  and  that  it  should  be  particularly  black  in 
obedience  to  the  natural  law  that  provides  that  the 
severity  of  the  fall  shall  be  proportioned  to  the  height  of 
the  climb.  The  boom  times  of  the  steel  trade  were  suc- 
ceeded with  disheartening  regularity  by  periods  of 
dearth.  One  year  steel  manufacturers  were  building 
themselves  palaces  and  purchasing  steam  yachts,  the 
next  they  were  mortgaging  all  they  had  to  pay  wages. 
One  year  the  steel  worker  was  a  man  favored  above  all 
others  of  his  class,  the  next  he  was  getting  his  meals  on 
charity  from  the  "soup  houses."  To  this  day  steel  vet- 
erans speak  of  the  dull  times  of  the  trade  as  "soup  house 
days." 

At  these  times  competition,  always  fierce,  became 
more  ruthless  than  ever.  The  old  adage  regarding  love 
and  war  was  stretched  to  include  the  steel  industry,  and 
everything  was  considered  fair  that  might  help  to  keep 
the  mills  running  full.  Prices  were  cut — and  wages 
with  them ;  steel  was  "dumped"  on  foreign  markets  at 
less  than  manufacturing  cost,  and  steel  makers  resorted 


Events  Preceding  the  Organization  5 

to  every  means  that  offered  to  divert  orders  from  com- 
petitors to  themselves.  It  was  a  case  of  dog  eat  dog,  and 
failures,  with  their  unavoidable  accompaniment  of  un- 
employed labor,  were  all  too  frequent. 

There  is  hardly  anyone  who  has  not  heard  of  the  now 
famous  steel  "pools."  These  were  simply  attempts  on 
the  part  of  the  steel  makers— who  thoroughly  realized 
that  the  killing  competition  just  described  could  benefit 
no  one — to  protect  themselves  in  times  of  stress  by  bind- 
ing each  other  not  to  sell  below  a  certain  price  or  more 
than  a  certain  tonnage,  and  by  making  it  of  no  avail, 
from  a  viewpoint  of  profit,  to  do  so.  There  were  rail 
pools  and  wire  pools,  shafting  pools  and  plate  pools, 
structural  pools,  horseshoe  pools,  and  in  fact  a  separate 
and  distinct  pool  for  nearly  every  steel  product  made. 
These  pools  were  merely  treaties,  but  treaties  in  which 
no  participant  trusted  the  other  and  which  consequently 
were  broken  by  each  as  soon  as  the  opportunity  to  get 
ahead  of  his  fellow  pool  member  presented  itself — lest 
the  other  should  get  a  similar  opportunity  first  and  take 
advantage  of  it. 

It  is  doubtful  if  a  single  pool  agreement,  and  their 
number  was  infinite,  was  ever  honestly  kept.  Old  steel 
makers  chuckle  today  as  they  relate  how  each  repre- 
sentative of  a  company  taking  part  in  a  pool  sought  to 
gain  an  advantage  over  his  competitors  while  the  pool 
was  yet  a-borning.  Listening  to  them  one  begins  to  won- 
der if  these  were  indeed  men  who  bore  high  and  honor- 
able reputations  in  the  business  world,  to  feel  a  growing 
respect  for  the  honor  that  is  said  to  exist  among  thieves. 

According  to  the  statements  of  men  who  themselves 
took  part  in  pools,  it  was  no  uncommon  thing  for  a 
manufacturer  to  station  a  salesman  outside  the  building 
where  a  pool  conference  was  being  held  and.  as  soon  as 
a  price  settlement  was  reached,  to  stroll  casually  over  to 
a  window  and  by  prearranged  signal  indicate  to  him  the 
level  agreed  on,  whereupon  the  salesman  would  pro- 


6  The  United  States  Steel  Corporation 

ceed  to  undercut  the  price  which  his  employer  was  even 
then  pledging  himself  to  maintain. 

"Every  man's  hand  was  against  his  neighbor  then; 
we  were  all  Ishmaelites,  every  one  of  us,"  said  John 
Stevenson,  Jr.,  a  veteran  who  had  worked  under  Car- 
negie, in  his  testimony  in  the  Federal  suit  for  the  dis- 
solution of  the  corporation.  Mr.  Stevenson  then  went 
on  to  relate  the  story  of  a  wire  pool  conference  at  which 
a  price  of  $1.50  a  keg  had  been  agreed  on  for  nails. 
After  the  morning  conference  he  went  to  the  telegraph 
office  to  wire  his  partner  and  found  one  of  his  fellow 
conferees  there.  He  waited  until  the  other  handed  in 
his  message  and  walked  away.  While  Stevenson  was 
writing  his  own  wire  the  operator,  in  mistake,  handed 
him  his  competitor's,  with  the  question,  "Is  this  al- 
right?" And  Stevenson  discovered  that  the  wire  in 
question  was  an  olTer  to  a  large  consumer  to  sell  him 
10,000  kegs  of  nails  at  $1,401 

Another  instance,  related  by  a  large  consumer,  shows 
how  these  agreements  were  evaded.  He  said  that  the 
company  from  which  he  purchased  his  supplies  of  steel 
pleaded  the  force  of  a  pool  agreement  as  an  excuse 
against  giving  him  a  discount  from  the  market  price. 
He  then  suggested  that  he  be  appointed  agent  of  the 
steel  company  in  his  town  at  a  commission  of  a  dollar 
a  ton,  and  this  solution  of  the  difficulty  was  agreed  to. 
He  was  the  only  consumer  of  steel  in  the  town  and  the 
commission  was  only  a  round-about  way  of  giving 
him  the  discount  asked. 

In  the  fierce  and  bitter  struggle  that  was  the 
steel  trade,  only  the  most  daring  or  the  most  unscrupu- 
lous manufacturer  could  survive,  and  under  the  strain 
for  production  that  it  necessitated  only  the  strongest 
workers  could  live.  No  one,  unless  he  has  been  through 
a  steel  plant,  can  imagine  the  conditions  under  which 
the  steelmaker  works.  The  visitor,  unaccustomed  to 
the  heat  that  is  flung  from  blast  furnace  or  rolling  mill 
as  from  the  gates  of  hell,  must  perforce  hold  his  hands 


J.   p.   MORGAN 


Events  Preceding  the  Organization  7 

before  his  face  at  times  to  mitigate  the  frying  sensation. 
True,  much  has  been  done  of  recent  years  to  make  the 
lot  of  the  man  at  the  furnace  or  rolling  mill  easier,  his 
work  less  trying  on  his  health.  But  at  the  time  of 
which  I  am  writing  this  was  not  the  case.  Under  the 
most  favorable  conditions  the  steel  mill,  as  a  well- 
known  steel  maker  said  not  long  since,  is  far  from  being 
a  drawingroom.  Under  the  conditions  that  prevailed 
toward  the  end  of  the  last  century,  when  men  were 
worked  to  the  breaking  point  in  the  mad  fight  for 
"tonnage,"  it  was  no  wonder  that  the  majority  of  steel 
workers  collapsed  early  under  the  strain  and  were 
thrown  on  the  human  scrap  pile,  their  vitality  sapped 
and  their  youth  gone. 

The  one  slogan  of  the  industry  then  was  "tonnage." 
Everything  was  sacrificed  by  the  manufacturer  to  this 
single  end.  Machinery,  comparatively  new,  was 
scrapped  to  make  room  for  more  modern  equipment. 
Waste  of  this  kind  was  not  considered.  Production 
was  everything  and  nothing  was  spared  to  obtain  in- 
creased output.  And  it  must  be  admitted  that  to  this 
attitude  on  the  part  of  producers,  as  much  perhaps  as 
to  her  immense  natural  advantages,  the  United  States 
has  owed  her  rapid  rise  to  the  front  rank  of  steel  nations. 

In  the  middle  of  the  nineteenth  century  American 
steel  making  was  in  its  infancy.  In  fact,  this  is  also 
true  of  the  steel  industry  of  the  whole  world,  for  it  was 
about  this  time  that  William  Kelly  in  America  and 
Henry  Bessemer  in  England  discovered  what  is  known 
as  the  Bessemer  process,  which  made  the  metal  avail- 
able for  the  numberless  commercial  uses  to  which  it  is 
now  put.  As  late  as  the  early  sixties  the  idea  of  using 
steel  for  railroad  rails  was  scoffed  at.  In  1867  there 
were  only  three  Bessemer  plants  in  this  country.  Great 
Britain  supplied  the  world's  steel.  But  shortly  after  the 
third  quarter  of  the  century  was  passed  the  United 
States  forged  to  the  lead,  and  has  held  it  ever  since.  In 
the  year  1900  the  steel  production  of  this  country  was 


8  The  United  States  Steel  Corporation 

10,188,329  tons,  Germany  coming  next  with  6,645,869 
tons  and  Britain  third  with  a  production  of  4,901,060 
tons.  In  1913  the  United  States  produced  31,300,874 
tons  of  steel,  or  more  than  Britain  and  Germany  com- 
bined. Today  the  rolling  mills  of  Pittsburg  alone  turn 
out  one-quarter  of  the  world's  steel. 

The  name  of  Andrew  Carnegie  is  inextricably  bound 
up  with  the  history  of  steel  in  the  United  States — and 
the  world.  "The  Iron  Master,"  the  "Steel  King"— by 
these  names  he  was  known,  and  he  deserved  them.  For 
more  than  a  quarter  of  a  century  Carnegie  was  the  most 
important  and  spectacular  figure  in  the  world  of  steel, 
and  his  name  will  not  be  forgotten  so  long  as  there  is  a 
rolling  mill  in  Pittsburg. 

Carnegie's  rise  from  utter  obscurity  until  he  became 
the  dominating  figure  in  the  leading  industry  of  the 
world  reads  like  a  page  out  of  fiction.  Only  a  very  brief 
outline  can  be  given  here.  Born  in  Dumferline,  Scot- 
land, in  1835,  the  future  Monarch  of  Steel  came  to  the 
United  States  with  his  father  at  the  age  of  thirteen  and 
started  his  career  as  a  bobbin  boy  in  a  cotton  mill  at  a 
wage  of  $1.20  a  week.  At  the  age  of  fifteen  he  became 
a  telegraph  messenger  and  later  an  operator  for  the 
Pennsylvania  Railroad,  and  his  ability  soon  attracted  the 
attention  of  Col.  Thomas  A.  Scott,  head  of  that  system, 
who  made  Carnegie  his  private  secretary.  Thus  the 
young  Scot  got  his  first  foothold  on  the  ladder  of  for- 
tune. He  saved  his  money  and  in  1864  made  his  en- 
trance in  a  quiet  way  on  the  stage  of  the  iron  industry, 
purchasing  a  one-sixth  interest  in  the  Iron  City  Forge 
Company.  One  of  his  partners  in  this  enterprise  was 
Henry  Phipps,  the  playmate  of  his  boyhood.  And 
Phipps  and  Carnegie  stuck  together  through  good  for- 
tune and  through  bad  until  the  latter's  retirement  from 
active  business.  Later  Carnegie  saw  a  Bessemer  con- 
verter in  operation,  one  of  the  most  impressive  sights 
in  the  making  of  steel,  and  this  converted  him  from  an 
iron  man  into  a  steel  man.     He  began  to  manufacture 


Events  Preceding  the  Organization  9 

steel,  and  with  phenomenal  success.  Breaking  down 
all  obstacles  in  his  way  to  fortune  he  became  a  terror 
to  competitors,  but  although  he  was  probably  well 
hated,  he  was  also  respected. 

In  1901  Carnegie  sold  out  the  steel  business  he 
had  built  up  to  the  organizers  of  the  United 
States  Steel  Corporation  for  $303,450,000  in  5  per^ 
cent  bonds  and  $188,556,160  in  common  and  pre- 
ferred stocks  of  the  new  company,  a  total  price  of 
$492,006,160! 

The  mark  that  Carnegie  left  on  the  industry  will 
never  be  wiped  out.  In  his  later  days,  as  steel  king,  he 
set  the  pace  for  all  others  to  follow.  And  it  was  a  fast 
one.  Pitiless  to  his  competitors,  he  had  the  gift  of 
drawing  to  him  men  of  high  ability ;  he  was  a  wonderful 
judge  of  men,  and  to  his  friends  he  was  generous  and 
open.  He  was  a  born  commander,  a  Napoleon  of  in- 
dustry. Having  a  wonderful  ability  for  organization 
and  a  passion  for  power  he  built  up  an  organization 
that  has  only  once  been  surpassed  in  the  world  of  trade, 
an  organization  that  was  at  the  same  time  utterly  loyal 
and  extremely  efficient. 

Whether  or  not  Carnegie  made  the  best  use  possible 
of  his  undoubted  abilities  it  is  for  posterity  to  decide. 
Beyond  question  America's  pre-eminence  in  steel  is  due 
largely  to  him.  But  he  was  also  at  least  partly  respon- 
sible for  the  situation  that  existed  in  the  steel  trade  in 
his  day.  Production,  tonnage,  was  his  fetish,  for  in 
this  he  saw  the  only  means  of  reaching  and  keeping  his 
supremacy,  and  to  gain  it  he  did  not  spare  himself,  the 
men  under  him,  or  least  of  all  his  competitors.  His  one 
effort  was  to  keep  his  mills  running  full,  and  everything 
was  made  subservient  to  that  end.  Where  he  led  others 
had  to  follow,  and  it  was  to  this  attempt  to  keep  up  full 
operations  at  all  times  that  the  exaggerated  competi- 
tion and  the  "soup  house"  periods  it  caused  was,  to  a 
great  extent,  due. 

It   is    not    generally   recognized    that    Carnegie   was 


10  The  United  States  Steel  Corporation 

largely  responsible  for  the  formation  of  the  United 
States  Steel  Corporation.  The  part  he  played  was  a 
quiet  one.  He  wanted  to  sell  out  and  retire — to  devote 
his  life  to  philanthropy,  education  and  the  cause  of 
peace.  To  sell  out  he  must  find  a  customer.  And  the 
stars  in  their  courses  fought  for  him.  The  devil's  luck 
with  which  many  of  his  competitors  credited  him  stuck, 
and  he  succeeded  in  accomplishing  the  sale. 

The  frequent  and  prolonged  periods  of  depression  had 
forced  upon  steel  makers  the  conviction  that  some  way 
of  combining  to  prevent  their  recurrence  was  desirable, 
even  necessary,  if  the  United  States  was  to  keep  and  in- 
crease its  lead  in  the  manufacture  of  the  metal  most 
needed  by  the  age.  Between  the  years  1890  and  1900 
combinations  in  industry  were  as  thick  as  the  leaves  in 
Vallambrosa.  And  steel  had  not  escaped  this  tendency 
to  amalgamate.  The  country's  wire  plants  had  been 
merged  gradually  into  one  company,  the  American  Steel 
and  Wire  Company  of  New  Jersey,  controlling  all  but 
a  small  number  of  wire  mills.  A  somewhat  similar 
situation  existed  in  regard  to  tin  plates,  tubes  and  fabri- 
cated products.  What  might  be  called  the  steel  com- 
panies proper  were  themselves  all  mergers  of  a  number 
of  small  plants,  although  there  was  nothing  like  central- 
ized control  and  the  trade  was  divided  among  several 
large  competing  units.  But  a  merger  of  these  com- 
panies had  been  talked  of  time  and  again,  and  its  even- 
tual accomplishment  was  generally  considered  in- 
evitable, sooner  or  later,  unless  Carnegie  succeeded  in 
crushing  all  competition  and  establishing  a  virtual 
monopoly  for  himself,  as  many  thought  he  would.  The 
time  was  ripe  for  a  big  steel  combine. 

And  the  time  being  ripe,  the  man  was  provided,  the 
man  destined  to  take  Carnegie's  place  as  the  central 
figure  of  the  steel  industry,  not  only  of  this  country  but 
of  the  world.  He  was  Elbert  H.  Gary,  then  president 
of  the  Federal  Steel  Company,  a  New  Jersey  corporation 
and  one  of  the  Carnegie  Company's  largest  competitors. 


Events  Preceding  the  Organization  11 

Born  on  a  farm  near  Wheaton,  111.,  and  educated  to 
the  practise  of  the  law,  Gary's  work  brought  him  into 
connection  with  many  large  corporations,  including  the 
Consolidated  Steel  and  Wire  Company  and  the  Illinois 
Steel  Company,  for  which  he  was  general  counsel. 
Gary  became  a  director  of  the  Illinois  Steel  Company, 
and  when  the  Federal  Steel  Company  was  organized 
in  1898  as  a  merger  of  the  Illinois  and  other  companies 
he  took  a  leading  part  in  the  work  of  organization.  The 
executive  ability  he  displayed  so  impressed  his  asso- 
ciates and  the  Morgan  interests,  who  financed  the 
merger,  that  he  was  unanimously  chosen  president  of 
the  new  company,  much  to  his  surprise,  he  has  since 
declared.  This  first  gave  him  a  prominent  part  on  the 
stage  of  steel,  on  which  he  has  been  the  most  striking 
figure  ever  since. 

Gary's  ambition,  like  Carnegie's,  knew  no  bounds; 
but,  where  the  little  Scotch  ironmaster  worked  to  make 
the  steel  industry  an  empire  over  which  he  should 
reign  supreme,  the  former  farmboy  dreamed  of  an  im- 
mense Republic  of  Steel.  Where  Carnegie  sought  to 
unify  the  control  of  the  steel  trade  and  bring  it  into 
his  own  hands,  Gary  sought  to  make  it  an  industry 
owned  by  the  people,  and  particularly  by  the  workers. 
Where  Carnegie  stopped  at  the  ocean  and  gave  his 
attention  to  world  business  only  at  times  when  over- 
production at  home  compelled  him  to  seek  foreign  mar- 
kets temporarily,  Gary  sought  to  establish  a  world- 
wide and  permanent  market  for  the  product  of  the 
blast  furnaces  and  rolling  mills  of  the  United  States. 
And  the  history  of  the  United  States  Steel  Corporation 
is  the  story  of  how  Gary  carried  out  his  dream. 

But  the  Federal  Steel  Company,  its  president  soon 
found,  was  not  an  instrument  big  enough  or  suitable 
for  the  carrying  out  of  his  plans.  In  the  first  place,  its 
plants  were  located  at  too  great  a  distance  from  the 
Atlantic  seaboard  to  render  an  invasion  of  foreign 
markets  feasible.    Freight  rates  to  the  ocean  were  pro- 


12  The  United  States  Steel  Corporation 

hibitive.  And  another  hindrance  was  encountered  in 
the  severe  ups  and  downs  to  which  the  steel  trade  in 
this  country  was  subject.  He  saw  that,  if  his  dreams 
were  ever  to  come  true,  the  Federal  Steel  Company 
mnst  be  enlarged  and  expanded,  must  provide  itself 
with  plants  able  to  export  steel  in  competition  with 
Great  Britain  and  Germany,  the  countries  which  ruled 
the  international  markets,  and  must  so  strongly  en- 
trench itself  that  it  would  not  be  too  greatly  aflfected 
by  periods  of  stress. 

One  man  there  was  who  could  provide  the  where- 
withal for  the  expansion  which  the  head  of  the  Federal 
Steel  Company  considered  necessary.  This  was  the 
late  J.  Pierpont  Morgan.  To  Morgan,  then,  Gary  took 
his  plans,  but  the  banker  was  not  enthusiastic.  Perhaps 
he  saw  that  few  steel  concerns  were  making  money  and 
feared  to  put  so  large  an  amount  of  capital  as  was  re- 
quired into  the  venture ;  perhaps  other  motives  gov- 
erned him ;  but,  whatever  his  reasons,  the  great  finan- 
cier hesitated,  would  not  permit  himself  to  be  convinced. 
Again  and  again  Gary  tried  to  persuade  Morgan,  but  in 
vain,  and  at  length  Gary,  satisfied  that  he  must  seek 
other  means  to  his  end,  turned  his  attention  toward 
raising  the  necessary  capital  elsewhere.  He  had  al- 
ready prevailed  upon  his  fellow  directors  of  the  Federal 
Steel  Company  to  pledge  subscriptions  to  a  large  sum 
for  the  purchase  or  erection  of  new  plants,  when  cir- 
cumstances played  into  his  hands.  Morgan  decided  to 
give  his  backing  to  the  formation  of  a  giant  steel  merger 
on  the  lines  Gary  had  proposed. 

The  story  of  how  Morgan  was  won  over  is  an  inter- 
esting one.  It  has  already  been  suggested  that  Car- 
negie was  anxious  to  sell  out,  and  Carnegie  usually  got 
what  he  wanted.  After  many  attempts  to  conclude  a 
satisfactory  deal  with  different  syndicates  Carnegie,  like 
Gary,  arrived  at  the  conclusion  that  Morgan,  and  he 
alone,  was  able  to  engineer  the  purchase  of  his  proper- 


CHARLES  M.  SCHWAB 


Events  Preceding  the  Organization  13 

ties.     Therefore,  he  decided,  Morgan  must  be  induced 
to  buy. 

At  first  Carnegie  tried  ordinary  tactics.  He  had 
mutual  acquaintances  suggest  to  the  banker  the  advisa- 
bility of  a  deal  by  which  the  Carnegie  company  would 
be  absorbed.  Time  and  again  this  suggestion 
was  made,  and  on  each  occasion  Morgan  listened — 
then  sent  for  Gary.  The  latter,  seeing  that  this  would 
be  an  excellent  means  of  accomplishing  what  he  de- 
sired for  the  Federal  company,  as  by  absorbing  the 
Carnegie  company  it  would  not  only  secure  a  steel- 
making  and  steel-selling  organization  without  equal 
at  the  time,  but  would  also  add  to  itself  plants 
which  could  and  would  give  battle  for  world  trade  to 
Britain  and  Germany,  did  all  he  could  to  induce  the 
financier  to  accept  the  suggestions  for  the  purchase 
of  these  properties.  But  each  time  Morgan,  after  care- 
ful consideration,  decided  not  to  act. 

Then  Carnegie  resorted  to  coercion.  Morgan  was 
heavily  interested  in  the  National  Tube  Company, 
which  was  itself  an  amalgamation  of  a  number  of 
smaller  tube  companies.  Carnegie  made  no  tubes. 
His  entrance  into  the  business  of  manufacturing  tubular 
products  would  undoubtedly  have  brought  the  National 
Tube  Company  face  to  face  with  more  serious  competi- 
tion than  it  had  ever  encountered.  And  Carnegie  threat- 
ened to  build  a  tube  mill.  This  action  had  two  pur- 
poses. It  was  apparently  intended  to  force  Morgan  to 
consider  the  purchase  of  the  Carnegie  properties,  and 
it  was  also  a  retaliatory  measure  against  the  decision 
of  the  National  Tube  management  to  erect  steel  mills 
which  would  render  the  company  independent  of  the 
Carnegie  Steel  Company  for  its  supplies  of  raw  ma- 
terial and  would  incidentally  deprive  Carnegie  of  a 
large  customer.  Carnegie  announced  his  plans  for  the 
proposed  tube  mill  publicly  and  bought  a  site  for  it  at 
Conneaut.     But  although  Morgan  knew  that  the  steel 


14  The  United  States  Steel  Corporation 

maker  was  able  and  ready  to  carry  out  his  project  he 
gave  no  sign  of  having  changed  his  mind. 

Carnegie's  next  step  was  more  important  and  serious. 
He  threatened  to  build  a  railroad  paralleling  the  Penn- 
sylvania Railroad  throughout  its  entire  length,  a  project 
which,  if  carried  through,  would  without  question  have 
materially  damaged  the  earning  power  of  the  great  rail- 
road system  and  would  have  been  a  heavier  blow  to 
the  Morgan  interests  than  the  erection  of  a  tube  mill. 
But  again  Morgan  paid  no  attention.  It  is  extremely 
doubtful  if  Carnegie,  powerful  as  he  was,  could  have 
seriously  intended  to  attempt  such  an  undertaking,  and 
therein  may  have  lain  the  reason  for  the  banker's  seem- 
ing indifference.  On  the  other  hand,  those  who  knew 
Carnegie  declared  that  he  would  have  found  means  to 
build  the  suggested  road,  even  as  he  had  in  the  past 
done  other  things  said  to  have  been  impossible. 

That  Carnegie  had  no  desire  to  enter  into  a  pitched 
battle  with  the  powerful  Morgan  interests  seems  to  be 
fairly  well  established  by  his  next  act.  Coercion  having 
failed,  he  again  resorted  to  peaceful  tactics  and  fired 
what,  possibly,  was  his  last  shot.  And  here  it  might 
be  interjected  that,  while  the  event  that  directly  led  up 
to  the  formation  of  the  Steel  Corporation  has  been  nar- 
rated scores,  probably  hundreds  of  times,  the  part  that 
Carnegie  played  therein  has  never,  so  far  as  I  have  been 
able  to  discover,  been  brought  out. 

Among  the  Carnegie  partners  was  a  young  man, 
Charles  M.  Schwab,  president  of  the  Carnegie  Steel 
Company.  Schwab  not  only  represented  the  top  notch  of 
efficiency  as  a  steel  maker,  a  salesman  and  an  executive, 
but  he  had  a  veritable  tongue  of  gold.  To  listen  to 
him  was  to  be  converted  to  his  views ;  he  could  talk  the 
legs  ofif  the  proverbial  brass  pot.  And  Carnegie  saw 
that  if  the  man  lived  who  could  convince  Morgan  to 
engineer  a  purchase  of  the  Carnegie  Steel  Company 
that  man  was  Charlie  Schwab.  Carnegie  therefore 
decided  to  bring  together  the  financier  and  the  president 


Events  Preceding  the  Organization  15 

of  the  Carnegie   Steel   Company  and   to  let  loose  on 
Morgan  the  flood  of  Schwab's  eloquence. 

On  the  night  of  December  12,  1900,  Edward  R.  Sim- 
mons and  Charles  Stuart  Smith,  both  close  friends  of 
Carnegie,  gave  a  dinner  to  which  Morgan  was  invited. 
And  to  Schwab  was  assigned  the  duty  of  making  the 
speech  of  the  evening.  Ostensibly  the  dinner  was 
merely  a  social  affair  with  no  ulterior  motive,  but  in 
the  light  of  subsequent  events  it  may  be  considered 
certain  that  it  was  arranged  at  the  suggestion  of  Car- 
negie, and  that  its  purpose  was  the  sale  of  his  prop- 
erties to  Morgan. 

Everything  went  off  as  planned.  Schwab  chose  for 
his  subject  the  steel  company  of  the  future.  He 
played  upon  this  theme  as  a  harp  to  an  attentive  audi- 
ence, not  the  least  attentive  of  whom  was  the  banker, 
and,  while  he  never  referred  directly  to  the  Carnegie 
company,  he  made  it  very  clear  that  the  concern  which 
he  described  in  glowing  terms  would  of  necessity  own 
and  control  the  Carnegie  plants. 

Schwab  forecasted  a  future  of  wonderful  brilliance 
for  the  steel  industry.  He  drew  a  word  picture  of  a 
company  big  enough  to  insure  the  greatest  economies 
in  the  securing  and  distribution  of  its  raw  material,  but 
highly  specialized  by  departments,  each  and  every 
plant  confining  its  attention  to  one  particular  product 
so  as  to  secure  the  highest  degree  of  efficiency.  He 
described  such  an  organization  as  able  to  dominate  the 
markets  of  the  world  and  to  set  a  pace  that  neither 
England  nor  Germany  could  follow.  The  ideal  struc- 
ture he  painted  was  such  a  one  as  was  well  worthy  the 
attention  of  the  greatest  of  bankers,  an  industrial  enter- 
prise that  even  the  great  Morgan  might  well  be  proud 
to  stand  sponsor  for. 

And  the  youthful  Carnegie  president  swept  the 
financier  off  his  feet  and  along  with  him  in  the  flood 
of  his  oratory.  The  United  States  Steel  Corporation 
was  not  actually  incorporated  for  some  months,  as  an 


16  The  United  States  Steel  Corporation 

undertaking  so  immense  naturally  took  a  good  deal  of 
time  to  put  through,  but  it  was  by  that  speech  that  the 
idea  of  a  vast  steel  merger,  sown  in  Morgan's  mind  by 
Gary,  was  quickened  into  life.  In  that  half  hour  the 
United  States  Steel  Corporation,  to  all  intents  and  pur- 
poses, became  an  actual  fact. 


ORE  TRAIN   LEAVING  CONNEAUT   HARBOR.  OHIO 


DUOUESNE  WORKS.     CARNEGIE  STEEL  CO.     BATTERY  OF  THE  MOST 

MODERN   FURNACES  OF  THE  CARNEGIE  STEEL  COMPANY 

IN  OPERATION 


CHAPTER  II 
THE  BIRTH  OF  THE  BIG  COMPANY. 

A  billion  dollars! 
The  financial  world,  accustomed  to  big  figures, 
gasped  when  the  plans  for  the  new  corporation, 
with  an  authorized  capitalization  of  $1,100,000,000  in 
stock  and  $304,000,000  in  bonds,  a  total  of  $1,404,000,000 
were  announced.  Wall  street  had  long  been  used  to 
treat  millions,  with  the  dollar  sign  before  them,  as 
mere  trifles,  and  even  tens  of  millions  were  common- 
place. Hundreds  of  millions  commanded  respect.  But 
a  billion,  a  thousand  millions,  that  was  merely  a  fig- 
ure, something  that  could  not  be  computed,  that  sur- 
passed imagination;  just  as  much  smaller  sums  are 
mere  rows  of  figures  to  most  of  us. 

And,  indeed,  the  mind  cannot  comprehend  really 
what  a  billion  means.  Some  concrete  form  of  compari- 
son is  needed  to  give  a  faint  idea  of  the  immensity  of 
the  capital  of  the  "Steel  Trust."  A  king's  ransom?  It 
would  have  ransomed  a  thousand  kings !  The  fabled 
wealth  of  Ormus  and  of  Ind,  of  Croesus,  of  Montezuma, 
all  these  fade  into  insignificance  when  compared  with 
this  gigantic  aggregate  of  money. 

If  the  authorized  capital  of  the  United  States  Steel 
Corporation  could  be  turned  into  solid  gold  it  would 
weigh  2,330  tons,  or  over  5,200,000  pounds ! 

This  gold  would  have  a  cubic  content  of  3,880  feet ! 

With  it  you  could  build  a  pillar  six  feet  square  and 
towering  108  feet  in  the  air;  or  a  Cleopatra's  needle  of 
virgin  gold  six  feet  square  at  its  base  and  tapering  to  a 
point  at  a  height  of  over  430  feet! 

A  train  of  fifty-eight  railroad  cars  would  be  required 
for  transporting  the  precious  metal,  with  two  big  en- 
gines, one  before  and  one  behind,  to  move  the  train ! 


18  The  United  States  Steel  Corporation 

For  storage  room  the  gold  would  require  a  vault 
eight  feet  high,  twenty  feet  wide  and  24^  feet  long — 
and  there  wouldn't  be  an  inch  of  spare  room ! 

Placed  at  one  end  of  a  scale  the  gold  would  need 
30,000  men  of  average  weight  to  balance  it! 

If  the  corporation's  capital  were  coined  into  Five 
Dollar  gold  pieces  they  would  pave  a  road  17  feet  wide 
for  more  than  15}4  miles! 

Stacked  one  on  the  other  these  coins  would  reach  a 
height  of  over  twenty  miles! 

If  this  huge  sum  were  converted  into  pure  silver  it 
would  weigh  87,500  tons,  with  a  cubic  content  of  268,000 
feet! 

This  silver  would  form  a  needle  six  feet  square  at 
the  base  and  piercing  the  skies  to  a  height  of  29,776 
feet,  or  above  the  highest  crest  of  the  Hymalayas ! 

It  would  take  2,200  freight  cars  to  load  it,  and  about 
55  powerful  locomotives  to  pull  these  cars! 

This  $1,404,000,000,  changed  into  dollar  bills,  would 
measure  166,200  miles,  forming  a  ribbon  that  would 
girdle  the  earth  six  times  and  leave  two  streamers  each 
8,000  miles  long  floating  behind ! 

These  bills  would  cover  an  area  of  228,317,433 
square  feet! 

An  expert  bank  teller  working  eight  hours  a  day, 
Sundays  and  holidays  included,  and  counting  one  bill 
a  second  without  rest,  would  take  more  than  133  years 
to  finish.  If  he  started  to  count  on  January  1,  1915, 
one  of  his  descendants  might  count  the  last  bill  in  the 
pile  about  the  end  of  June,  2048! 

If  the  corporation's  capital  were  divided  evenly  it 
would  give  every  man,  woman  and  child  in  the  United 
States  about  $15.50! 

The  interest  on  this  sum  at  5%  would  keep  some 
35,000  American  families  in  comparative  comfort — 
without  touching  the  capital ! 

The  money  represented  by  the  big  company's  cap- 
italization would  buy  the  cotton  crop  of  1914,  the  larg- 


The  Birth  of  the  Big  Company  19 

est  on  record,  at  over  17c  a  lb,  or  some  2^  times  the 
market   price. 

From  the  date  of  the  Simmons  dinner  to  that  on 
which  the  plans  for  the  new  corporation  were  an- 
nounced was  a  very  short  period.  The  birth  of  the  cor- 
poration did  not  take  long.  Once  convinced  that  a  mer- 
ger of  a  number  of  large  companies  making  various  steel 
products  was  practicable  and  desirable  for  the  good 
of  the  industry  and  of  the  country — as  well  as  for  the 
pockets  of  the  consolidators — Morgan  and  his  asso- 
ciates lost  no  time  in  bringing  it  about.  The  dinner 
took  place  on  December  12,  1900;  the  corporation  was 
formally  chartered  on  February  25  of  the  year  following 
and  began  business  as  a  corporate  entity  on  April  1, 
1901. 

It  is  likely  that  Schwab  himself  did  not  foresee  how 
far-reaching  would  be  the  effects  of  his  speech.  Mor- 
gan did  not  do  things  by  halves.  When  the  young 
steelmaker  caught  his  attention  and  drew  a  picture  of 
a  company  big  enough  to  manufacture  all  lines  of  steel 
and  to  specialize  on  each  one,  powerful  enough  to 
enter  and  occupy  foreign  markets  and  rich  enough  to 
expand  to  meet  the  growing  demand  for  the  metal  with- 
out danger  of  overstretching  its  resources,  he  painted 
with  his  words  something  which  the  banker  thought  it 
would  be  a  proud  thing  to  father.  Morgan  saw  before 
him  unlimited  possibilities  not  for  money  making 
alone — for  this  was  by  no  means  the  ruling  passion  of 
his  being — but  of  creating  an  industry  that  should  leave 
an  indelible  impress  for  good  on  industrial  history, 
a  business  so  great  that  its  actions  could  not  fail  to 
force  themselves  upon  the  attention  of  the  world  and 
to  command  imitation  on  the  part  of  other  industries. 
A  business,  moreover,  so  powerful  that  it  would  not 
need  to  resort  to  the  dubious  practices  of  the  old  days 
to  succeed. 

For  just  as  among  individuals,  trickery  and  deceit  are 
the  weapons  of  the  weak,  so  the  really  strong  industry 


20  The  United  States  Steel  Corporation 

should  and  can  be  fair  and  open  in  its  dealings  not  only 
with  its  customers  but  with  its  employees  and  its  com- 
petitors, and  these  last  must  of  necessity  adopt  the  same 
course. 

The  great  steel  concern  that  Schwab  discussed  cor- 
responded very  closely  to  the  company  that  Gary  had 
long  been  urging  Morgan  to  assist  in  creating  by  the 
expansion  of  the  Federal  Steel  Co.  Immediately  after 
the  dinner  Morgan  drew  Schwab  aside  and  the  latter 
then  went  more  fully  into  the  subject  of  a  vast  steel 
merger  than  he  had  been  able  to  in  the  confines  of  an 
after  dinner  oration.  Finally  the  financier  asked 
Schwab  if  he  thought  Carnegie  would  sell,  and  upon 
receiving  an  affirmative  reply  Morgan  requested  the 
other  to  find  out  definitely  and  inform  him  upon  what 
terms.  A  few  days  later  Schwab  reported  that  Car- 
negie's price  was  $303,450,000  in  bonds  and  $188,556,160 
in  stock  of  the  suggested  new  company.  After  some 
consultation  with  Gary,  Robert  Bacon  and  others,  Mor- 
gan accepted  these  terms. 

The  Nucleus  of  the  Corporation. 
^  As  a  nucleus  of  the  proposed  steel  corporation,  then, 
we  have  the  Carnegie  and  the  Federal  companies.  But 
Gary's  plans  had  provided  for  the  manufacture  of  a 
number  of  products  made  by  neither  of  these  two  con- 
cerns, and  Schwab,  in  his  talk,  had  pictured  an  in- 
dustrial organization  that  would  turn  out  from  its  mills 
every  kind  of  steel  product,  that  would  be  able  to  sup- 
ply its  customers  with  everything  made  of  the  metal 
from  a  nail  to  a  railroad  car,  Morgan  was  not  a  man 
of  half  measures.  There  was  no  need  to  make  two 
bites  at  a  cherry,  even  though  it  was  a  mighty  big 
cherry.  Having  once  decided  to  finance  the  formation 
of  the  new  company  he  thought  it  might  as  well  be 
comprehensive  in  its  products,  and  so  negotiations  were 
immediately  set  on  foot  with  the  controlling  interests 
in  the  leading  concerns  making  wire,  tubes,  tin  plate, 


The  Birth  of  the  Big  Company  21 

etc.,  with  a  view  to  bringing  them  all  into  the  consoli- 
dation. 

The  Morgan  interests  had  financed  the  organization 
of  the  National  Tube  Co.,  the  principal  figure  in  which 
was  Edmund  C.  Converse,  so  the  tube  company  nat- 
urally was  taken  in.  The  other  concerns  and  interests 
which  it  was  proposed  to  unify  into  the  new  corpora- 
tion were  the  American  Steel  &  Wire  Co.,  the  chief 
figures  in  which  were  the  late  John  Warne  Gates,  Al- 
fred Cliflford,  William  Edenborn  and  others;  the  four 
companies  forming  the  so-called  Reid-Moore  group, 
controlled  by  Daniel  G.  Reid  and  William  H.  Moore — 
namely  the  National  Steel  Co.,  American  Tin  Plate  Co., 
American  Sheet  Steel  Co.  and  American  Steel  Hoop 
Co. 

By  the  early  part  of  February,  1901,  the  negotiations 
were  concluded  and  the  plans  for  the  organization  of 
the  United  States  Steel  Corporation  were  announced. 
They  provided  for  the  amalgamation  of  these  eight 
companies,  the  smallest  of  which  had  a  capitalization  of 
$33,000,000,  and  the  largest  over  $300,000,000.  Be- 
fore the  plans  were  finally  put  through,  however,  two 
more  units  were  added  to  the  list,  the  Lake  Superior 
Consolidated  Iron  Mines,  dominated  by  the  Rockefeller 
interests,  and  the  American  Bridge  Co.,  at  the 
head  of  which  was  Percival  Roberts,  Jr.  The  ab- 
sorption of  the  Lake  Superior  Consolidated,  with  its 
vast  ore  holdings  and  steamship  fleet,  was  deemed  nec- 
essary to  ensure  the  Steel  Corporation  an  adequate  ore 
reserve.  The  American  Bridge  Co.,  which  secured 
most  of  its  supplies  of  steel  from  the  Carnegie  company, 
seemed  to  fit  naturally  into  the  plans  for  the  consolida- 
tion. 

Thus  there  were  ten  large  companies  taken  in,  merged 
to  form  the  United  States  Steel  Corporation.  They  had 
an  aggregate  capital  of  $867,550,394,  as  follows: 


28  The  United  States  Steel  Corporation 

Common  Preferred 

Company.  Stock.              Stock.  Bonds. 

American  Bridge  Co $30,527,800  $30,527,800     

American  Sheet  Steel  Co. .  24,500,000  24,500,000     

American  Steel  Hoop  Co. .  19,000,000  14,000,000     

American  Steel  &  Wire  Co.  50,000,000  40,000,000     

American  Tin  Plate  Co. . .  28,000,000  18,325,000     

Carnegie   Steel  Co 160,000,000  $160,000,000 

Federal  Steel  Co 46,484,300  53,260,900     

Lake  Superior  Consolidated 

Iron  Mines   29,424,594  

National   Steel  Co 32,000,000  27,000,000    

National  Tube  Co 40,000,000  40,000,000     


Total  $459,936,694  $247,613,700      $160,000,000 

The  American  Bridge  Co.,  as  its  name  implies,  was 
a  fabricator  of  bridge  material  and  structural  steel  gen- 
erally. It  was  not  a  steel  company  in  the  strict  sense. 
It  obtained  a  large  proportion  of  its  supplies  of  steel 
from  the  Carnegie  company  and  fabricated  this  mate- 
rial. It  had  a  capacity  of  approximately  600,000  tons 
yearly.  The  company  was  incorporated  in  May,  1900, 
as  a  consolidation  of  a  number  of  smaller  concerns  and 
at  the  time  of  its  absorption  into  the  Steel  Corporation 
had  a  surplus  of  $4,030,331.  Holders  of  its  preferred 
stock  received  $110  in  preferred  stock  of  the  new  corpo- 
ration for  each  $100  of  their  holdings,  while  the  common 
stockholders  received  $105  in  U.  S.  Steel  common  for 
each  $100  of  their  holdings. 

Four  companies,  as  has  been  stated,  formed  the  "Reid- 
Moore"  group.  The  American  Tin  Plate  Co.,  was  char- 
tered in  December,  1898.  Like  all  the  concerns  form- 
ing this  group  it  was  considerably  over-capitalized. 
Nevertheless  its  earnings  in  the  first  year  of  its  existence 
were  approximately  $3,600,000  or  20%  on  its  preferred 
capital,  and  in  1900  they  exceeded  $5,750,000,  or  about 
32%  on  the  preferred  capital.  At  its  formation  it  ac- 
quired 39  different  plants,  embracing  279  mills,  manu- 
facturing tin  and  terne  plates.  Its  preferred  stockhold- 
ers received  $125  in  U.  S.  Steel  preferred  stock  for  each 
$100  of  their  holdings  and  its  common  stockholders  $120 


The  Birth  of  the  Big  Company  23 

in  preferred  and  $125  in  common  stock  of  the  new  cor- 
poration for  each  $ir^   oi  their  holdings. 

The  National  Steel  o.,  another  of  the  Reid-Moore 
concerns,  was  the  mak  r  of  raw  material  for  the  other 
three  members  of  the  group.  Its  production  was  large- 
ly confined  to  semi-fmished  products  and  it  had  a  capa- 
city of  about  1,700,000  tons  of  steel  a  year.  It  had 
some  ore  holding  in  the  Mesaba  Range  as  well  as  a 
twenty  year  contract  for  a  one-sixth  interest  in  the  ore 
production  of  the  Oliver  Iron  Mining  Co.  The  company 
was  chartered  early  in  1899  and  in  the  first  year  of  its 
existence  earned  approximately  $8,750,000,  or  over  32fo 
on  its  preferred  stock.  Of  this  amount,  however,  $3,- 
617,000  was  written  off  for  depreciation.  At  the  time 
it  was  merged  into  the  Steel  Corporation,  it  had  surplus 
and  undivided  profits  of  $6,910,995.  Holders  of  both  its 
common  and  preferred  stocks  for  each  $100  of  their 
holdings  got  $125  in  the  corresponding  stock  of  the  new 
corporation. 

The  American  Steel  Hoop  Co.,  third  of  the  group, 
was  formed  a  month  or  two  later  than  the  National 
Steel  Co.  It  was  a  consolidation  of  nine  concerns  man- 
ufacturing chiefly  bars,  hoops,  bands,  cotton  ties  and 
skelp,  and  had  an  annual  capacity  of  about  700,000  tons. 
Its  earnings  were  not  as  large  as  those  of  the  others  of 
the  group,  its  first  nine  months  operations  yielding  a 
return  at  the  annual  rate  of  slightly  under  7%  on  the 
preferred  capitalization.  Its  accumulated  surplus  on 
April  1,  1901,  was  $1,660,311.  The  two  classes  of  its 
stock  were  exchanged  at  par  for  the  same  classes  of 
U.  S.  Steel  stock. 

Last  of  the  Reid-Moore  companies  to  be  organized 
was  the  American  Sheet  Steel  Co.,  chartered  in  Febru- 
ary, 1900.  This  company  acquired  164  sheet  mills,  19 
puddling  furnaces  and  a  number  of  open-hearth  fur- 
naces and  bar  mills.  It  had  a  capacity  of  about  half  a 
million  tons.  Its  earnings,  from  the  time  it  began  busi- 
ness to  April  1,  1901,  amounted  to  $1,676,480,  and  its 


24  The  United  States  Steel  Corporation 

surplus  on  the  latter  date  was  $705,757.  Its  stock  was 
exchanged  for  Steel  Corporation  securities  on  the  same 
basis  as  those  of  the  Steel  Hoop  Company. 

The  National  Tube  Co.,  organized  in  June,  1899,  was 
a  merger  of  13  smaller  concerns  having  an  aggregate 
capacity  of  about  850,000  tons  of  steel  wrought  tubing. 
Its  principal  plants  were  located  in  the  Pittsburg  dis- 
trict. In  the  year  1900  the  company  reported  net  prof- 
its after  depreciation  of  over  $14,600,000,  or  about  35% 
on  its  preferred  capital  stock.  National  Tube  preferred 
stockholders  exchanged  their  holdings  at  the  rate  of 
$100  for  $125  of  U.  S.  Steel  preferred,  while  the  junior 
stockholders  received  $8.80  in  preferred  and  $125  in 
common  stock  of  the  new  corporation  for  each  $100  they 
held. 

The  Federal  Steel  Co.,  second  only  in  size  and  import- 
ance to  the  Carnegie  Steel  Co.,  was  chartered  late  in 
1898,  as  a  merger  of  the  Illinois  Steel  Co.,  Minnesota 
Iron  Co.,  Lorain  Steel  Co.,  Elgin,  Joliet  &  Eastern 
Railway  Co.  and  the  Johnson  Co.  of  Pennsylvania.  The 
steel  companies  it  controlled  brought  to  it  some  of  the 
best  equipped  steel  mills,  manufacturing  various  prod- 
ucts, in  the  country,  as  well  as  a  number  of  ore  vessels 
and  a  large  interest  in  the  Duluth  &  Iron  Range  R.  R. 
Its  earnings  in  1899  were  approximately  $9,100,000,  or 
about  17%  of  its  preferred  stock  and  in  1900,  $11,722,000, 
or  about  22%.  Federal  Steel  preferred  stockholders  re- 
ceived new  preferred  stock  at  the  rate  of  $110  for  each 
$100,  and  the  common  stock  was  exchanged  at  the  rate 
of  $100  of  Federal  common  for  $4  of  preferred  and 
$107.50  of  the  common  stock  of  the  U.  S.  Steel  Corpo- 
ration. 

The  Lake  Superior  Iron  Mines,  dominated  by  the 
Standard  Oil  interests,  was  formed  in  1893.  It  was 
merely  an  ore  company  and  had  ore  reserves,  owned  or 
leased,  estimated  at  nearly  400,000,000  tons.  The  com- 
pany also  owned  the  Duluth,  Missabe  &  Northern  Rail- 
road, and  it  was  affiliated  with  the  Bessemer  Steamship 


The  Birth  of  the  Big  Company  25 

Co.,  afterwards  purchased  by  the  Steel  Corporation. 
The  earnings  of  the  Lake  Superior  company  were  enor- 
mous, having  been  nearly  58%  on  its  capital  in  1900. 
For  each  $100  of  its  stock — there  was  only  one  class — 
$135  each  of  preferred  and  common  stocks  of  the  U.  S. 
Steel  Corporation  were  exchanged. 

The  American  Steel  &  Wire  Co.,  of  New  Jersey,  was 
a  consolidation  effected  in  January,  1899,  of  the  majority 
of  the  country's  wire  mills.  It  had  a  rod  mill  capacity 
of  over  1,100,000  tons  and  a  wire  nail  capacity  of  more 
than  10,000,000  kegs,  or  over  500,000  tons.  It  also 
owned  extensive  ore  and  coking  coal  properties.  In  the 
first  year  of  its  operation  the  Wire  company  earned 
nearly  19%  on  its  common  stock  after  an  allowance  of 
$1,200,000  for  depreciation,  and  in  1900  its  earnings  ap- 
plicable to  the  common  stock  were  $4,202,129,  or  nearly 
Sy2%  on  the  issue.  Its  preferred  stock  was  exchanged 
on  a  basis  of  $117.50  U.  S.  Steel  preferred  for  each  $100, 
and  its  common  stock  on  the  basis  of  $102.50  of  Steel 
common  for  each  $100  of  Steel  &  Wire. 

We  come  now  to  the  largest  and  most  important  of 
the  ten  companies  originally  merged  into  the  monster 
Steel  Corporation — the  Carnegie  Steel  Co.,  the  great 
organization  ruled  by  the  Monarch  of  Steel  and  turning 
out  from  its  furnaces  and  mills  practically  one-fifth  of 
all  the  steel  made  in  the  United  States;  and,  incidentally, 
pouring  undreamed  of  wealth  into  the  pockets  of  Car- 
negie and  his  associates.  A  company  that  realized 
profits  in  1899  of  nearly  $24,000,000  and  in  1900  of  ap- 
proximately $40,000,000 ! 

The  Carnegie  Steel  Co.  was  a  formal  merger  of  the 
Carnegie  and  Frick  interests.  By  its  absorption  the 
new  corporation  secured  possession  of  the  greatest  steel 
organization  of  its  time,  as  well  as  of  the  important 
coke  holdings  of  the  H.  C.  Frick  Coke  Co. — owning 
about  40,000  acres  of  coking  coal  lands,  11,000  coke 
ovens  and  other  property — a  controlling  interest  in  the 
Oliver  Mining  Co.  with  its  large  ore  possessions,  the 


26  The  United  States  Steel  Corporation 

controlling  interest  in  the  Pittsburg,  Bessemer  &  Lake 
Erie  Railroad,  not  to  mention  a  number  of  other  con- 
cerns and  interests  of  less  importance. 

Unlike  most  of  the  other  merged  companies,  the 
Carnegie  Steel  Co.  had  all  its  steel  making  plants  con- 
centrated in  the  Pittsburg  district.  It  was  in  this  lo- 
cality that  Carnegie  had  built  up  his  great  business  ma- 
chine, and  his  fortune.  He  had  never  attempted  to 
build  elsewhere,  with  the  exception  of  his  threat  to  erect 
a  tube  plant  at  Conneaut.  Carnegie  believed  in  the 
future  of  Pittsburg.  And  he  himself  did  more  than 
anyone  else  to  assure  that  future.  Carnegie  it  was  that 
had  made  Pittsburg  the  steel  center  of  the  universe. 
And  his  plants  there,  at  the  time  they  were  taken  over 
by  the  corporation,  had  an  annual  capacity  of  some 
3,500,000  tons  of  steel  ingots  and  over  3,000,000  tons  of 
finished  products. 

When  the  Carnegie  company  was  reorganized  in 
March,  1900 — at  which  time  the  merger  with  the  Frick 
company  took  place — its  capital  was  placed  at  $160,000,- 
000  in  stock  and  a  like  amount  in  bonds.  All  the  stock 
and  all  but  550,000  of  the  bonds  were  taken  over  by  the 
organizers  of  the  Steel  Corporation  and  for  these,  as 
has  been  seen,  a  total  of  $492,006,160  was  paid,  as  fol- 
lows: for  $159,450,000  Carnegie  bonds  an  equal  amount 
of  bonds  of  the  new  company  was  exchanged ;  another 
$144,000,000  new  bonds  was  employed  to  take  up  $96,- 
000,000  of  the  Carnegie  stock  while  $98,277,120  Steel 
preferred  and  $90,279,040  Steel  common  paid  for  the  re- 
maining $64,000,000  Carnegie  Steel  stock. 

In  order  to  provide  for  the  exchange  of  new  stocks 
and  bonds  for  the  securities  of  the  constituent  compan- 
ies the  new  organization,  which  it  had  been  finally  de- 
cided to  name  the  United  States  Steel  Corporation,  was 
given  an  authorized  capitalization  of  $550,000,000  each 
in  common  and  preferred  stocks  and  $304,000,000  in 
bonds,  a  total  of  $1,404,000,000.  To  ensure  sufficient 
working  capital  at  the  start  a  sum  of  $25,000,000  was 


The  Birth  of  the  Big  Company  27 

put  up  in  cash  by  the  syndicate,  headed  by  the  Morgan 
interests,  which  had  financed  the  transaction.  This 
syndicate  also  turned  over  to  the  corporation  $174,000 
in  securities  of  the  merged  companies  which  had  been 
acquired  by  means  other  than  exchange,  and  expended 
some  $3,000,000  as  syndicate  expenses.  For  the  cash, 
stock  and  its  services  the  syndicate  received  648,987 
shares  of  preferred  stock  and  648,988  shares  of  common 
stock.  Practically  all  the  stockholders  of  the  old  com- 
panies, satisfied  that  with  Morgan  backing  the  new  com- 
pany its  success  was  fairly  well  assured,  took  advan- 
tage of  the  exchange  offer,  with  the  result  that,  at  the 
end  of  the  first  nine  months  of  its  existence  less  than  1% 
of  the  old  securities  were  still  held  in  the  hands  of  the 
public  and  of  the  corporation's  capital  as  authorized 
$1,319,229,000  had  been  issued. 

The  steel  producing  equipment  controlled  by  this  vast 
aggregation  of  capital  comprised  149  steel  works  of 
various  kinds,  having  an  annual  capacity  of  9,400,000 
tons  of  crude  and  about  7,700,000  tons  of  finished  steel ; 
78  blast  furnaces  with  a  pig  iron  capacity  of  7,400,000 
tons;  over  50,000  acres  of  coking  coal  lands;  over  1,000 
miles  of  railroad  and  a  fleet  of  112  vessels  engaged  in 
traffic  on  the  Great  Lakes.  Not  to  mention  large  areas 
of  ore  bearing  property  with  uncounted  millions  of  tons 
of  developed  and  undeveloped  ore  as  well  as  docks, 
natural  gas  and  limestone  properties,  etc. 

Just  as  the  corporation's  capital,  wealth  and  resources 
had  never  before  been  approached  by  any  industrial 
organization,  so  its  board  of  directors  surpassed  in  ag- 
gregate wealth  that  of  any  other  company.  The  list  of 
the  men  who  guided  the  corporation's  destinies  included 
J.  P.  Morgan,  John  D.  Rockefeller  and  a  host  of  others 
whose  gigantic  fortunes  were  exceeded  only  by  those 
of  the  two  kings  of  finance  named.  The  others  were*. 
Elbert  H.  Gary,  H.  H.  Rogers,  Charles  M.  Schwab, 
Robert  Bacon,  Edmund  C.  Converse,  Francis  H.  Pea- 
body,  Percival  Roberts,  Jr.,  Charles  Steele,  William  H. 


28  The  United  States  Steel  Corporation 

Moore,  Norman  B.  Ream,  Peter  A.  B.  Widener,  James 
H.  Reed,  Henry  Clay  Frick,  William  Edenborn,  Mar- 
shal Field,  Daniel  G.  Reid,  John  D.  Rockfeller,  Jr.,  Al- 
fred Clifford,  Clement  A,  Griscom,  William  E.  Dodge, 
Nathaniel  Thayer  and  Abram  S.  Hewitt. 

Their  fortunes,  if  it  were  possible  to  add  them  to- 
gether, would  amount  to  a  sum  vastly  greater  even 
than  the  huge  capital  of  the  "Steel  Trust." 

Charles  M.  Schwab  was  chosen  president  of  the  cor- 
poration, Arthur  F.  Luke,  treasurer,  and  Richard  Trim- 
ble, secretary.  Elbert  H,  Gary  became  chairman  of  the 
Executive  Committee,  and  with  him  were  Charles 
Steele,  Percival  Roberts  and  Edmund  C.  Converse.  A 
Finance  Committee  was  also  appointed  with  Robert 
Bacon  at  its  head,  and  H.  H.  Rogers,  Norman  B. 
Ream,  Elbert  H.  Gary  and  P.  A.  B.  Widener  as  the 
other  members.  The  salaries  of  the  president  and  of 
the  chairman  of  the  Executive  Committee  were  placed 
at  $100,0(X)  each. 

Prophecies  of  the  Pessimists. 

It  is  hardly  to  be  wondered  at  that  many  prophets 
declared  the  new  company  was  foredoomed  to  failure. 
Its  very  size,  they  claimed,  would  render  it  unwieldy, 
and  it  would  collapse  of  its  own  weight.  And  there 
was  a  matter  of  something  like  half  a  billion  dol- 
lars of  common  stock  represented  by  no  tangible  as- 
sets, in  fact,  pure  water.  It  was  questioned  if  profits 
could  ever  be  paid  on  this. 

How  could  Morgan  ever  have  been  induced  to  back 
so  great  and  so  impracticable  an  enterprise?  Many 
asked  this  question,  and  found  no  satisfactory  reply. 
Some  thought  the  banker  had  over-reached  himself  at 
last,  but  the  majority  were  convinced  that  the  organiza- 
tion of  the  Steel  Corporation  was  merely  a  prodigious 
stock  jobbing  scheme  to  put  money  into  the  pockets  of 
Morgan  and  his  associates — and  that,  as  such,  it  would 
prove  eminently  successful.     Few  there  were  who  had 


The  Birth  of  the  Big  Company  29 

faith  in  the  "Steel  Trust"  as  a  practical  business  propo- 
sition. 

But  incredible  as  it  may  have  seemed  to  those  ac- 
customed to  the  vagaries  of  high  finance,  the  promoters 
of  the  United  States  Steel  Corporation  did  not  regard 
it  as  a  mere  venture  in  financial  legerdemain.  They 
had  the  greatest  faith  in  it  as  a  straightforward  busi- 
ness enterprise.  They  believed  in  its  future.  And  the 
reader  of  the  history  of  the  big  company  must  judge 
for  himself  whether  it  has  justified  its  organization,  not 
only  from  an  economic,  but  more  particularly  from  a 
sociological  standpoint. 

Morgan,  it  has  been  said,  considered  the  financing 
of  the  Steel  Corporation  the  crowning  achievement  of 
his  career.  Was  he  mistaken?  Or  did  he,  in  making 
possible  this  giant  corporation,  erect  himself  a  monu- 
ment more  lasting  than  brass? 

It  has  been  admitted  that  a  large  part  of  the  Steel 
Corporation's  original  capital  was  water.  Just  how 
much  was  water  will  never  be  decided.  Herbert  Knox 
Smith,  Commissioner  of  Corporations  under  President 
Roosevelt,  estimated  that  substantially  half  of  the  cor- 
poration's total  issue  of  securities  was  not  based  on  any 
tangible  property  assets.  Other  critics  have  gone  fur- 
ther, while  some  have  placed  the  amount  of  overcapital- 
ization at  a  lower  figure.  However,  Mr.  Smith's  fig- 
ures, so  far  as  they  go,  are  probably  approximately 
correct. 

But  does  the  value  of  tangible  assets  indicate  actual 
value?  Does  the  cost  of  erecting  a  factory  or  a  busi- 
ness indicate  the  value  of  that  business?  Manhattan 
Island,  if  the  familiar  story  be  correct,  was  originally 
purchased  for  twenty-four  dollars.  A  business  that  is 
losing  money  is  seldom  worth  the  investment  put  into 
it,  and  conversely  a  money  making  concern  must  be 
valued  on  its  earning  power.  Many  of  the  companies 
merged  into  the  United  States  Steel  Corporation  were 
immensely  profitable,  and  even  though  they  themselves 


30  The  United  States  Steel  Corporation 

may  have  been  overcapitalized,  their  value  to  the  new 
corporation  and  to  their  stockholders  was  greater  than 
their  capitalization. 

Value  of  the  Carnegie  Co. 

The  actual  plant  value  of  the  Carnegie  Steel  Co.,  to 
take  one  instance,  has  been  placed  at  about  $75,000,000. 
That  is,  these  plants  could  have  been  duplicated  for 
that  sum.  But  the  organizers  of  the  Steel  Corporation 
bought  not  only  the  Carnegie  plants;  they  purchased 
an  organization  that  was  at  the  same  time  the  most 
efficient  steel  making  and  steel  selling  machine  in  the 
world,  an  organization  that  the  best  qualified  witnesses 
have  declared  was  worth  not  less  than  $250,000,000.  An 
organization,  moreover,  that  had  earned  $40,000,000  in 
a  single  year.  And  what  was  true  in  the  case  of  the 
Carnegie  company  was,  in  part  at  least,  applicable  to 
most  of  the  other  concerns  which  went  to  make  the 
United  States  Steel  Corporation. 

Further,  in  organizing  the  big  company,  there  were 
many  conflicting  interests  to  be  brought  into  harmony. 
It  was  necessary  to  secure  control  of  various  enter- 
prises in  order  to  obtain  the  rounded  out  organization 
aimed  at  by  Gary,  Schwab  and  the  others.  And  each 
seller,  naturally,  was  holding  out  for  all  he  thought  it 
possible  to  get.  It  was,  therefore,  a  matter  of  bar- 
gaining and  without  doubt  the  result  was  that  in  more 
than  one  case  the  final  price  was  well  above  the  value 
of  the  thing  purchased. 

In  this  connection  it  is  related  that  shortly  after  the 
corporation  had  been  formed  the  old  Iron  Master  and 
Morgan  met  on  a  steamship  on  their  way  to  Europe 
and  Carnegie  in  the  course  of  conversation  intimated 
that  he  considered  he  had  driven  a  shrewd  bargain  with 
the  corporation  interests.  To  which  the  banker  is  said 
to  have  replied:  "I  would  have  paid  another  hundred 
million  if  you  had  asked  it."  The  story,  for  which  I 
will  not  vouch,  concludes  that  Carnegie  never  forgave 
himself  for  his  too  modest  demands. 


The  Birth  of  the  Big  Company  31 

"Blue  Sky"  Behind  Common  Stock. 

The  general  consensus  of  opinion  is  that  the  corpo- 
ration's bonds  and  preferred  stock  were  both  amply 
protected  at  the  time  of  its  organization,  but  that  the 
junior  stock  had  been  left  nothing  but  the  "blue  sky" 
behind  it.  Even  admitting  the  justice  of  this  claim — 
at  the  time  in  question — such  a  state  of  things  no  longer 
exists.  Whatever  water  once  permeated  the  capital 
of  the  United  States  Steel  Corporation  has  been 
squeezed  out.  Year  by  year  the  directors  have  voted 
large  sums  out  of  earnings  for  the  building  of  new 
plants,  the  extension  of  old  ones,  until  approximately 
$500,000,000  has  been  expended  in  this  manner,  thus 
providing  adequate  protection  for  the  common  stock 
and  putting  the  company  today  beyond  reach  of  criti- 
cism on  the  charge  of  overcapitalization. 

When  the  corporation  began  its  existence  the  plants 
of  its  subsidiary  companies,  as  we  have  seen,  had  a 
capacity  of  over  9,000,000  tons  of  steel,  while  its  fur- 
nace capacity  was  considerably  less.  The  corporation 
was  compelled  to  purchase  a  large  proportion  of  its 
pig  iron  requirements  in  the  open  market.  Today  its 
plants  are  capable,  working  full,  of  producing  nearly 
20,000,000  tons  of  steel  ingots  and  nearly  all  the  pig  iron 
it  needs.  In  other  words,  its  steel  capacity  has  been 
doubled  and  its  resources  for  making  its  own  raw  ma- 
terial more  than  doubled.  And  practically  all  this 
gain  in  production  has  been  attained  by  devoting  profits 
to  additions  and  expansion  with  the  object  of  putting 
actual  plant  value  behind  every  dollar  of  stock  issued. 

Today  the  directors  of  the  Steel  Corporation  are  satis- 
fied that  its  entire  capital  is  amply  protected  by  assets. 
Evidence  of  this  is  found  in  the  fact  that  the  policy  of 
using  profits  for  building  new  mills  and  furnaces,  or 
to  acquire  additional  property,  has  been  abandoned 
and  it  is  planned  to  finance  future  expansion  by  the 
issuance  of  bonds,  which  will  permit  stockholders  to 


32  The  United  States  Steel  Corporation 

share  more  liberally  in  profits  than  they  have  in  the 
past. 

We  have  seen  how  the  Steel  Corporation  was  formed 
as  a  consolidation  of  ten  of  the  leading  steel  producing 
concerns  of  the  United  States,  with  a  combined  capacity 
of  very  nearly  two-thirds  of  the  country's  total  possible 
output.  So  great  an  operation  cannot  be  considered 
merely  as  a  matter  of  finance.  The  biggest  of  trusts 
must  of  necessity  contain  enormous  potentialities  af- 
fecting the  general  welfare  of  industry  and  of  the  coun- 
try and  its  organizers  and  managers,  in  consequence, 
cannot  resent  any  fairminded  investigation  into  the  use 
it  has  made  of  its  powers.  Has  the  Steel  Corporation's 
existence  been  prejudicial  to  the  interests  of  its  com- 
petitors, its  customers,  its  employees,  or  through  these, 
of  the  general  public?  These  questions  will  be  treated 
in  more  or  less  detail  in  the  course  of  this  history,  but 
it  might  not  be  out  of  place  to  point  out  a  few  salient 
facts  on  the  subject  at  this  point. 

Since  the  Steel  Corporation  began  its  existence  a 
number  of  new  steel  companies  have  sprung  into  being, 
while  the  older  so-called  independents  have  greatly 
increased  their  output.  While  the  corporation  has 
added  possibly  7,000,000  tons  to  its  capacity,  its  com- 
petitors have  added  a  still  larger  amount,  so  that  the 
big  company  at  present  controls  less  than  half  the  fin- 
ished steel  production  of  the  United  States. 

I  have  been  unable,  after  painstaking  investigation, 
to  find  any  evidence  of  the  Steel  Corporation's  having  at 
any  time  used  its  immense  wealth  to  undersell  a  com- 
petitor, large  or  small,  with  the  purpose  of  driving  it  out 
of  business,  while  I  have  discovered  more  than  one 
instance  where  it  has  assisted  competitors.  A  com- 
pany, especially  one  whose  very  size  exposes  it  to  envy 
and  attack,  could  not  fail  to  earn  the  enmity  of  its 
competitors  if  its  methods  were  not  always  square  and 
above  suspicion,  and  it  is  a  noteworthy  fact  that  the 


The  Birth  of  the  Big  Company  33 

"Steel  Trust's"  competitors  have  time  and  again  de- 
clared that  they  have  no  cause  of  complaint  against  it. 

That  this  attitude  on  the  part  of  the  independent 
steel  men  was  inspired  solely  by  the  fear  that  criticism 
levelled  against  the  big  corporation  would  involve  a 
trade  war  directed  against  the  critic  and  his  consequent 
ruin  has  been  suggested  in  some  quarters.  This  is  a 
poor  compliment  to  the  heads  of  some  of  the  country's 
leading  industries  and  no  one  who  knows  men  like 
Charles  M.  Schwab,  John  A.  Topping,  James  A.  Camp- 
bell, Willis  King  and  the  other  big  "independents"  would 
consider  the  charge  for  an  instant. 

How  has  the  customer,  the  steel  consumer,  fared? 
The  corporation  has  always  been  slow  to  advance 
prices  and  equally  slow  to  lower  them.  It  has  usually 
acted  to  prevent  prices  reaching  an  abnormally  high 
level  in  boom  times,  when  overwhelming  demand  had 
placed  the  market  in  control  of  the  seller  of  steel,  by 
setting  a  maximum  quotation  at  what  it  considered  a 
fair  profit  level,  and  has  thus  protected  the  customer 
whose  urgent  need  of  steel  at  a  particular  time  might 
have  forced  him  to  buy  at  a  figure  which  would  have 
been  unprofitable  for  him.  Such  a  course  was  pursued 
no  later  than  1912-1913  when  the  corporation  fixed  $1.40 
per  100  lbs.  as  its  price  for  bars  and  accepted  all  busi- 
ness offered  at  this  price,  although  it  was  possible  to 
obtain  much  more,  and  its  competitors  were  actually 
getting  from  $2  to  $10  a  ton  higher  as  a  premium  for 
quick  or  "preferred"  delivery.  The  corporation  refused 
to  give  such  preferment.  "First  come,  first  served"  it 
said,  in  effect. 

And  by  endeavoring  to  hold  prices  in  periods  of  de- 
pression it  has  afforded  protection  to  customers  who 
had  made  big  purchases  at  top  prices  and  who  would 
have  suffered  heavy  losses  if  their  competitors,  com- 
ing into  the  market  later,  could  have  bought  their  sup- 
plies of  steel  at  lower  quotations  than  they  had.  I  have 
asked  one  big  steel  consumer  after  another — not  all 


34  The  United  States  Steel  Corporation 

customers  of  the  Steel  Corporation — what  he  thought 
would  be  the  effect  of  the  disintegration  of  the  big 
company,  and  have  invariably  received  the  reply  that 
it  would  be  the  worst  thing  that  could  possibly  happen 
for  the  interest  of  the  consumer. 

Has  the  public,  which  always  pays  the  bill  in  a  long 
run,  been  injured?  In  the  fourteen  years  that  have 
elapsed  since  the  Steel  Corporation  began  to  operate 
the  tendency  of  steel  prices,  as  compared  with  those  of 
other  commodities,  has  been  almost  constantly  down- 
ward.   There  is  no  question  that  quality  has  advanced. 

Nor  has  the  employee  been  lost  sight  of.  It  is  ad- 
mitted by  all  familiar  with  the  subject  that  the  Steel 
Corporation  has  been  the  prime  factor  in  the  gradual 
advance  of  steel  workers'  wages  that  has  been  wit- 
nessed since  the  opening  of  the  present  century.  On 
several  occasions  the  corporation  has  increased  wages 
and  always  without  solicitation  from  the  men  them- 
selves. It  has  refused  to  reduce  wages  in  times  of  stress 
and  the  worker  has  always  shared  in  the  profits  of 
"boom"  times.  And  what  is  more  important,  it  has  spent 
immense  sums  of  money  in  sanitation  and  other  meth- 
ods of  bettering  the  working  man's  lot,  has  helped  him 
to  save  and  invest  his  money,  offering  a  premium  for 
doing  so,  and  has  set  an  example  in  industry  generally 
that  has  done  more  for  the  cause  of  common  labor  than 
has  been  accomplished  even  by  the  labor  unions. 

Does  it  seem  absurd  to  accuse  the  management  of  the 
corporation  of  socialistic  leanings?  Among  the  150,000 
stockholders  of  the  big  company  nearly  one-third  are 
men  who  work  in  its  furnaces,  mines,  mills  or  offices, 
and  these  have  become  stockholders  under  the  plan  that 
permits  employes  to  acquire  stock  on  the  instalment 
plan  and  offers  a  premium  as  an  inducement  to  hold  it. 
I  question  whether  the  history  of  the  industrial  world 
contains  such  another  instance  of  a  step  toward  owner- 
ship of  the  product  of  labor  by  labor  itself,  toward  the 
highest  and  best  socialism. 


STRAIGHTEXIXC;   PIPE 


CHAPTER  III 
EARLY  HISTORY.     1901-1907. 

ECONOMY  brought  about  by  integration  and  in- 
creased efficiency,  and  the  development  of  a  per- 
manent and  well  cultivated  export  market  fo^ 
American  made  steel :  these,  briefly,  were  the  objects 
for  which,  its  organizers  claimed,  the  United  States 
Steel  Corporation  was  formed. 

Hence  it  is  but  natural  that  the  corporation's  early 
history  should  concern  itself  chiefly  with  the  attainment 
of  these  results,  that  it  should  be  a  narrative  of  the  steps 
taken  to  co-ordinate  and  harmonize  the  various  units 
brought  together  in  the  new  Colossus  of  Industry,  of  the 
work  that  had  to  be  accomplished,  the  difficulties  that 
had  to  be  overcome  to  fulfill  its  raison  d'etre  and  to 
bring  it  to  the  place  it  now  occupies  as  the  most  im- 
portant business  enterprise  in  the  world. 

For  it  must  not  be  supposed  that  the  mere  merging 
of  a  number  of  corporations  of  different  sizes  and  de- 
grees of  importance  by  the  acquisition  of  their  securities 
meant  that  the  consolidated  company  was  organized  in 
the  true  sense.  Indeed,  the  financial  organization  was 
the  smallest  part  of  the  work  to  be  done.  As  we  have 
seen,  the  financial  transaction  that  brought  together 
the  ten  large  steel  companies  forming  the  United  States 
Steel  Corporation  was  carried  through  within  a  few 
months  and  with  comparatively  little  effort.  Morgan 
waved  his  magic  wand,  lent  his  power  and  his  name, 
and  the  thing  was  virtually  done.  But  what  might  be 
called  the  physical  organization  was  a  bigger  task,  and 
it  took  years  to  accomplish.  And  it  would  not  be  too 
much  to  say  that  the  success  of  this  physical  organiza- 


36  The  United  States  Steel  Corporation 

tion  has  been  the  measure  of  the  success  of  the  Steel 
Corporation, 

Of  all  the  dangers  that  beset  the  path  of  the  new 
corporation  the  greatest  was  the  fact  that  it  was  not 
an  operating  company,  with  so  many  scattered  plants 
under  one  central  management,  but  a  holding  company 
controlling  by  stock  ownership  a  number  of  large  indus- 
trial parts  which  had  previously  been  controlled  by  va- 
rious conflicting  interests  and  each  of  which  continued 
to  operate  necessarily  under  a  separate  management. 

The  corollary  of  such  a  state  of  affairs  was  that  the 
management  of  each  constituent  company  troubled  it- 
self solely  about  the  success  of  its  own  particular  unit 
and  took  no  interest  in  the  success  of  the  other  sub- 
sidiaries or  of  the  corporation  as  a  whole.  And  the 
continuance  of  such  a  condition  would  have  made  im- 
possible the  attainment  of  the  ends  for  which  the  Steel 
Corporation  was  formed. 

To  illustrate:  The  Carnegie  Steel  Co.  and  the  Illi- 
nois Steel  Co.,  a  subsidiary  of  the  Federal  Steel  Co., 
had  widely  separated  plants,  and,  because  of  the  im- 
pf^rtant  item  of  freight  rates,  sold  for  the  most  part  in 
different  territories.  But  the  two  companies  competed 
in  a  middle  ground  and  each  had  succeeded  in  encroach- 
ing on  the  other's  territory  in  some  instances,  had  at- 
tached to  itself  certain  customers  therein.  To  retain 
these  customers  each  company  was  compelled  to  sell  in 
a  locality  adjacent  to  the  other's  mill  at  a  price  the  same 
as  its  competitor  was  willing  to  offer.  The  Carnegie 
company,  for  instance,  might  have  achieved  the  custom 
of  a  railroad  whose  Eastern  terminus  was  Chicago.  To 
supply  the  orders  of  this  road  it  would  have  to  pay 
freight  tariffs  from  its  mills  near  Pittsburg  and  deliver 
the  goods  to  the  road  at  Chicago  at  the  same  quota- 
tion the  Illinois  company  was  making  for  deliveries 
from  its  mills  in  the  very  suburbs  of  Chicago.  It  is 
extremely  doubtful  if  such  a  situation  was  really  ad- 
vantageous to  either  company  in  the  long  run.     It  is 


Early  History.     1901-1907  37 

certain  that  its  continuance  would  have  been  distinctly 
disadvantageous  to  the  corporation  that  owned  the 
stock  of  both  concerns ;  it  simply  meant  that  the  cor- 
poration would  have  to  pay  freight  for  carrying  steel 
hundreds  of  miles  when  it  was  able  to  deliver  it  from 
a  mill  practically  at  the  point  of  delivery. 

The  officers  of  each  company  were  naturally  unwill- 
ing to  hand  over  custom  they  had  built  up  by  their  ef- 
forts to  a  concern  long  regarded  as  a  competitor.  Even 
from  the  standpoint  of  the  then  existing  conditions  each 
must  have  felt  that  it  was  his  job  to  make  a  good 
showing  for  the  company  he  managed ;  he  had  no 
concern  elsewhere.  But,  for  the  good  of  the  whole  or- 
ganization, it  was  absolutely  necessary  that  these  of- 
ficers should  be  brought  to  realize  that  they  were  work- 
ing first  of  all  for  the  United  States  Steel  Corporation, 
that  intercompany  jealousies  must  be  buried  for  the 
common  good  and  the  interests  of  the  party  made  sub- 
servient to  the  welfare  of  the  state.  And  the  way  to 
do  this  was  to  make  the  interests  of  the  corporation, 
the  controlled  company  and  the  individual  worker  iden- 
tical, 

Andrew  Carnegie  had  built  up  the  greatest  steel  com- 
pany of  its  time  by  appealing  to  the  loyalty  of  his  men 
through  self  interest.  Like  Napoleon's  soldiers,  each 
man  under  him  carried  a  potential  Marshal's  baton  in 
his  knapsack.  The  Napoleon  of  Steel  held  dangling 
before  the  eyes  of  his  subordinates  the  hope  of  a  part- 
nership in  the  great  Carnegie  company  as  a  reward  for 
meritorious  service,  and  most  of  his  later  partners  be- 
came so  in  just  this  way.  And  the  scheme  worked  out 
by  the  corporation's  management  to  bring  about  the 
desired  harmony,  to  assure  loyalty  to  the  United  States 
Steel  Corporation  first  and  last,  was  modelled  to  some 
extent  on  Carnegie's  method.  It  became  known  as  the 
Stock  Subscription  and  Profit  Sharing  Plan. 

Before  going  into  the  details  of  the  plan  an  example 
of  its  effects  may  be  illuminating.     Journeying  over 


38  The  United  States  Steel  Corporation 

the  corporation's  plants  and  mines  I  was  impressed  by 
this  very  spirit  of  loyalty  and  co-operation  on  the  part 
of  officers  and  workers  alike,  and  remarked  it  to  William 
A.  McGonagle,  president  of  the  Duluth,  Missabe  & 
Northern  Railroad.  And  Mr,  McGonagle  related  the 
following  instance  of  this  spirit  of  co-operation: 

"When  we  were  planning  the  big  ore  concentrator  at 
Coleraine  the  engineers  and  other  officers  of  the  va- 
rious companies  concerned  were  called  together  in  con- 
sultation and  certain  differences  of  opinion  arose  re- 
garding the  plans,  each  of  the  men  present  urging 
changes  which  he  thought  would  be  of  benefit  to  the 
company  he  represented.  While  the  discussion  was  at 
its  height  somebody  rose  and  said,  'Gentlemen,  it  is 
not  a  question  of  what  is  best  for  the  Duluth,  Missabe 
&  Northern,  the  Oliver  Iron  Mining  Co.  or  any  other 
company;  the  whole  question  is,  what  is  best  for  the 
interests  of  the  United  States  Steel  Corporation  ?'  That 
settled  it.  All  differences  were  smoothed  out  and  a  har- 
monious plan  quickly  agreed  on." 

This  result  was  due  to  the  plan  referred  to  which  was 
devised  to  give  each  employee  the  stimulus  of  personal 
ownership,  an  incentive  not  confined,  as  it  had  been  for- 
merly, to  a  few  individuals,  but  distributed  throughout 
the  organization.  The  plan  as  finally  worked  out  and 
put  into  operation  was  designed  to  accomplish  three 
main  objects:  first,  to  interest  employees  in  the  Steel 
Corporation  as  a  whole  and  not  merely  in  the  operations 
of  the  subsidiary  for  which  they  worked ;  second,  to  give 
them  an  incentive  to  do  everything  possible  to  reduce 
expenses  and  correspondingly  increase  profits;  third, 
to  offer  them  an  inducement  to  stay  with  the  corpora- 
tion and  identify  themselves  with  it. 

All  employees  of  the  corporation  were  entitled  to 
avail  themselves  of  the  benefits  of  the  first,  or  stock  sub- 
scription, part  of  the  plan.  Each  year  the  directors 
allotted  a  certain  amount  of  stock  to  be  offered  to  em- 
ployees at  a  price  slightly  below  the  prevailing  market 


Early  History.     1901-1907  39 

quotation,  with  the  privilege  of  payment  on  the  instal- 
ment plan  in  small  monthly  amounts.  In  addition  to 
whatever  dividends  were  declared  on  the  stock  so  pur- 
chased, stockholding  employees  remaining  with  the 
corporation  for  five  years  were  entitled  to  a  bonus  of 
$5  a  year  on  each  share  of  preferred  and  $3.50  a  year 
on  each  share  of  common  stock  held.  Thus  not  only 
were  the  interests  of  employer  and  employed  made  the 
same  but  the  worker  was  enabled  to  make  a  profitable 
investment  on  the  instalment  plan,  below  the  market 
level,  besides  receiving  a  handsome  bonus  on  his  pur- 
chase. In  the  first  few  years  of  the  operation  of  the  plan 
only  preferred  stock  was  offered,  but  the  appreciation 
which  the  plan  received  led  the  management  to  offer 
both  issues  in  more  recent  years,  and  in  nearly  every 
case  the  amount  allotted  has  been  liberally  oversub- 
scribed. In  the  twelve  years  since  the  first  offering  of 
stock  was  made  (there  was  none  in  1915,  the  unsatis- 
factory condition  of  the  steel  trade  in  the  later  part 
of  1914  rendering  it  inadvisable),  a  total  of  505,957 
shares  have  been  subscribed  for  under  the  plan,  an 
average  of  42,163  a  year.  The  average  number  of  em- 
ployees subscribing  each  year  was  23,527.  In  1914  the 
largest  subscriptions  were  recorded,  46,498  employees 
taking  over  90,600  shares  of  stock. 

In  December,  1914,  there  were  42,300  employees  in- 
terested in  the  plan,  that  is,  that  number  were  either 
paying  for  stock  or  drawing  bonuses  under  the  five 
years  clause.  As  it  is  likely  that  there  are  many  em- 
ployees holding  stock  which  they  acquired  in  the  early 
years  of  the  plan's  operation  it  would  be  fairly  safe 
to  place  the  number  of  the  big  company's  employees 
who,  as  stockholders,  are  interested  in  its  welfare,  at 
50,000  in  round  figures.  It  has  cost  the  corporation 
to  maintain  the  plan  since  its  inception  approximately 
$800,000,  but  this  expense  has  been  more  than  offset  by 
increased  efficiency,  loyalty  and  co-operation. 

Only  "the  men  who  occupy  official  and  semi-official 


40  The  United  States  Steel  Corporation 

positions  and  who  are  engaged  in  directing  and  manag- 
ing the  affairs  of  the  corporation  and  of  its  several  sub- 
sidiary companies"  were  concerned  in  the  profit  shar- 
ing portion  of  the  plan.  This  was  largely  an  adapta- 
tion of  Carnegie's  method  of  rewarding  his  assistants 
for  good  service  with  the  difference  that  it  held  out  no 
allure  of  return  for  effort  selfishly  directed,  but  only 
that  done  for  the  good  of  the  entire  organization.  It 
was  a  yearly  distribution  to  the  men  above  described 
of  a  small  percentage  of  the  profits  above  $80,000,000, 
part  of  the  bonus  being  paid  in  cash  and  part  in  stock 
of  the  corporation.  At  the  time  of  the  promulgation  of 
the  plan  it  was  made  plain  that  there  would  be  no 
increases  in  salaries  of  officials.  All  additions  to  salary 
would  come  through  these  bonuses,  and  in  basing  them 
on  the  profits  of  the  corporation  and  not  of  the  separate 
subsidiary  companies  a  powerful  motive  for  loyal  and 
harmonious  effort  for  the  good  of  the  corporation  was 
created. 

Why  did  not  the  laborer  share  in  this  bonus  distribu- 
tion? It  would  have  been  impossible  to  make  anything 
like  an  equitable  distribution  among  the  employees  of 
every  class,  especially  in  view  of  the  fluctuating  char- 
acter of  a  large  mass  of  the  labor  employed  in  the  in- 
dustry. But  the  worker  with  his  hands  did  share  in 
profits  in  a  more  definite  way.  His  wage  was  increased 
time  and  again  and  he  received  the  benefits  of  these  in- 
creases whether  profits  were  large  or  small.  And  in  the 
stock  subscription  part  of  the  plan,  with  its  attached 
automatic  bonus,  he  had  an  equal  opportunity  with  the 
men  above  him  in  authority. 

But  long  before  the  Stock  Subscription-Profit  Shar- 
ing Plan  was  perfected  steps  had  been  taken  to  co-ordi- 
nate the  work  of  the  corporation  and  to  bring  about 
economies.  First  of  these  was  the  institution  of  a  sys- 
tem of  comparative  cost  sheets,  immediately  after  the 
corporation  began  its  existence. 

The  earning  of  profits  for  stockholders  was  the  first 


Early  History.     1901-1907  41 

object  of  the  big  company,  as  it  is  in  every  business,  and 
its  formation  had  been  undertaken  largely  with  the 
*Wea  that  the  magnitude  of  its  operations  would  make 
greater  economies  possible,  with  a  gain  rather  than  a 
sacrifice  of  efficiency  and  quality.  In  the  old  steel  days 
the  calculation  of  costs  had  been  more  or  less  haphaz- 
ard, at  least  in  most  instances.  Too  often  the  entire 
operating  expense  of  steel  making,  from  mining  to  the 
turning  out  of  the  finished  product,  had  been  "lumped" 
at  the  end  of  the  year,  and  there  was  no  means  of  arriv- 
ing at  the  knowledge  of  just  where  profits,  if  there  were 
any,  were  made,  while  if  they  were  non-existent  or 
unsatisfactory  it  was  equally  out  of  the  question  to  fix 
the  blame  of  any  one  department.  Moreover,  such  se- 
crets of  economy  as  were  discovered  by  those  in  charge 
of  a  furnace  or  mill  were  rigidly  guarded  as  giving  an 
advantage  over  competitors ;  all  of  which  did  not  con- 
tribute to  a  general  high  average  of  efficiency  and 
economy. 

The  corporation's  management  first  set  to  work  to 
ascertain  the  exact  cost  of  running  each  and  every  mine, 
furnace  or  other  department,  the  costs  being  tabulated 
for  the  information  of  the  whole  organization.  The 
cost  tables  were  made  up  in  the  most  minute  detail,  the 
blast  furnace  cost  sheets  alone  containing  over  8,000 
difTerent  items,  and  by  their  aid  the  several  department 
superintendents  could  see  at  a  glance  what  item  in 
their  operations  was  below  the  average,  was  too  costly, 
and  could  take  the  necessary  steps  to  remedy  matters. 
These  tables  also  created  a  spirit  of  emulation,  of 
friendly  rivalry,  between  the  various  departmental  units, 
which  alone  was  a  potent  incentive  towards  economy. 

So  immediate  and  so  marked  was  the  result  of  this 
system  of  cost  checking  that,  according  to  Charles  M. 
Schwab,  a  saving  of  $4,000,000  was  effected  in  the  blast 
furnace  department  alone  in  the  first  year  of  the  cor- 
poration's existence ! 

This  history  does  not  pretend  to  be  a  technical  trea- 


42  The  United  States  Steel  Corporation 

tise  on  the  manufacture  of  steel,  hence  details  of  the 
many  ways  and  means  adopted  by  the  corporation  to 
achieve  economy  would  be  superfluous.  The  corpora- 
tion's method  of  distributing  the  ore  from  the  Great 
Lake  region  to  its  various  plants,  however,  is  particu- 
larly worthy  of  mention  as  it  is  a  system  that  could 
only  be  employed  by  a  very  large  concern,  such  as  the 
corporation,  and  therefore  serves  to  bear  out  the  claim 
of  the  organizers  of  the  big  company  that  immense  op- 
erations were  necessary  for  the  manufacture  of  steel 
at  the  lowest  cost  and  highest  efficiency. 

Within  a  few  miles  of  the  celebrated  Hull-Rust  mine, 
the  largest  of  the  great  open  pit  ore  deposits  of  North- 
ern Minnesota,  lies  the  little  town  of  Hibbing.  At  this 
town,  which  is  situated  on  the  line  of  the  Duluth,  Mis- 
sabe  &  Northern  Railroad,  the  corporation  maintains  a 
chemical  laboratory  well  equipped  for  the  analyzing  of 
iron  ore,  and  as  each  car  of  ore  passes  through  Hibbing 
on  its  way  to  the  docks  a  small  sample  is  taken  out  and 
an  immediate  analysis  made. 

Nor  far  from  the  docks  are  the  extensive  yards  of  the 
D.,  M.  &  N.,  at  Proctor,  two  miles  long,  with  55  miles 
of  track  and  capable  of  accommodating  4,000  cars. 
About  2,500  cars  have  been  handled  in  these  yards  in 
one  day  and  in  one  season,  that  of  1907,  some  14,000,000 
tons  of  ore  passed  through  them  en  route  to  the  hun- 
gry furnaces  of  the  different  constituent  companies  of 
the  corporation. 

Before  the  trains  reach  Proctor  the  chemical  content 
of  every  car  has  been  ascertained  at  Hibbing,  and  the 
results  are  telegraphed  on,  so  that  the  cars  composing 
the  train  can  be  distributed  on  the  sidings  in  accord- 
ance with  the  classification  of  their  contents  as  shown 
by  the  chemical  tests.  Thus,  if  any  company  wants  a 
certain  grade  or  mixture  of  grades  of  ore,  a  trainload 
of  that  grade  or  grades  is  made  up  at  Proctor  and  sent 
to  the  docks  for  transfer  to  that  company.  This  means 
that  each  furnace  gets  exactly  the  kind  of  ore  it  needs 


Early  History.     1901-1907  43 

to  fill  its  orders;  it  means  better  and  more  uniform 
quality  in  the  finished  product.  It  also  means  a  saving 
to  the  corporation  of  several  hundreds  of  thousands  of 
dollars  yearly.  And  this  method  of  assorting  and  class- 
ifying ores  would  be  impossible  in  a  small  organiza- 
tion. 

Not  least  among  the  economies  following  in  the  wake 
of  the  corporation's  organization  were  the  conservation 
effected  and  additional  profits  earned  by  manufacturing 
into   merchantable  products  what  had   formerly   been 
waste.     The  manufacture  of  the  so-called  by-products 
of  the  steel  industry  had  been  practiced  in  Germany  for 
many  years,  and  to  a  limited  extent  in  this  country  as 
well.     But  to  get  the  best  results  not  only  was  a  con- 
siderable outlay  for  new  plant  equipment  required,  but 
the  services  of  a  corps  of  trained  and  experienced  chem- 
ists had  to  be  engaged.     And  this  meant  an  expense 
that,  especially  as  the  whole  by-product  idea  was  in 
somewhat  of  an  experimental  stage,  companies  even  of 
moderate  size  as  steel  companies  go  hesitated  to  under- 
take it.     With  the  corporation's  vast  resources,  many 
subsidiaries  and  large  output  the  expense  of  investigat- 
ing and   experimenting  was   spread   out  so   as   to   be 
hardly  felt,  a  careful  study  of  the  subject  was  made 
and    plants   were   erected.     This   has   borne    fruit   not 
alone  in  increasing  profits  for  the  corporation  and  its 
stockholders  but  in  blazing  a  path  for  the  steel  trade  of 
the  United  States  as  a  whole  (all  the  larger  steel  com- 
panies have  by-product  plants  to-day),  and  finally  in  ef- 
fecting an  important   conservation  of  the  natural  re- 
sources of  the  country. 

Coke,  the  fuel  used  to  make  steel,  is  made,  as  is  prob- 
ably universally  known,  from  coal.  In  the  old  days  of 
the  trade,  and  to  a  great  extent  still,  the  coal  was 
burned  in  big  brick  ovens  with  open  tops,  known  as  bee- 
hive ovens,  which  produced  about  60  tons  of  coke  from 
100  tons  of  coal  and  blew  out  in  smoke  into  the  air  the 
oils  and  gas  contained  in  the  coal.    In  the  modern  by- 


44  The  United  States  Steel  Corporation 

product  coke  ovens  about  80  tons  of  coke  are  obtained 
from  100  tons  of  coal,  a  gain  of  25  per  cent.  Nor  is 
this  saving  all.  The  gases,  instead  of  being  blown  out 
into  the  air  and  burned,  are  conducted  through  pipes 
to  an  intricate  apparatus  where  coal  tar,  ammonium 
sulphate,  a  valuable  fertilizing  agent,  ammonia  and  ben- 
zol, practically  the  same  as  gasoline,  as  well  as  other 
minor  products,  are  extracted,  and  the  gas  itself  is  made 
available  for  use  in  motor  engines  or  in  illuminating. 
More  than  one  large  city  today  lights  its  streets  with 
the  gas  from  by-product  coke  plants. 

As  it  takes  over  a  ton  of  coke  to  make  a  ton  of  steel 
it  is  obvious  that  the  saving  of  25  per  cent,  in  the  coke 
yield  from  coke  is  an  important  item  to  a  corporation 
that  produces  from  ten  to  fourteen  millions  of  tons  of 
steel  a  year.  And  it  means  just  that  saving  of  the 
natural  resources  of  the  country  in  accomplishing  the 
same  result.  The  profits  from  the  by-products  are  also 
material,  how  much  so  may  be  imagined  from  the  fact 
that  the  patentees  of  one  process  are  usually  willing 
to  build  a  by-product  plant  in  connection  with  a  steel 
works  at  a  cost  of  several  millions  of  dollars  and  to  take 
their  pay  for  it  from  the  profits  on  the  by-products 
alone,  handing  over  the  plant  itself  at  the  end  of  twenty 
years.  "You  give  us  the  coal  and  we'll  give  you  the 
coke — and  in  twenty  years  the  plant  is  yours,"  they 
say  to  the  steel  maker.  Needless  to  say  the  Steel  Cor- 
poration erects  its  own  plants  and  derives  the  full  prof- 
its therefrom. 

Another  economy  of  importance  in  its  saving  of  both 
labor  and  material  is  found  in  the  generation,  from  what 
were  once  the  waste  gases  of  the  blast  furnace  opera- 
tion, of  electric  power  for  running  the  entire  steel  mill. 

A  very  important  by-product  of  the  steel  industry  is 
Portland  cement.  This  is  made  from  blast  furnace  slag, 
not  only  a  waste  previously,  but  a  nuisance,  as  it  accu- 
mulated and  had  to  be  freighted  away  from  the  mills 
and   "dumped."     The    Illinois   Steel    Co.    had   cement 


Early  History.     1901-1907  46 

plants  at  South  Chicago  for  years  before  the  corpora- 
tion was  formed,  but  the  big  company  extended  the 
manufacture  of  cement  by  the  erection  of  new  plants, 
notably  the  one  at  Buffington,  Indiana,  and  today  its 
plants  have  a  capacity  of  some  27,000  barrels  of  cement 
daily,  worth,  say,  a  little  over  a  dollar  a  barrel. 

Another  new  by-product,  made  from  open-hearth 
slag,  is  a  phosphate  fertilizer  which  has  only  recently 
been  put  on  the  market.  Large  quantities  of  phosphate 
for  fertilizer  have  been  imported  in  the  past  and  it  is 
hoped  by  the  introduction  of  this  new  product  to  do 
away,  in  part,  with  the  necessity  for  importations. 

Greater  earnings  for  the  corporation,  larger  profits 
for  its  stockholders,  are  represented  by  the  extension 
of  the  manufacture  of  these  by-products.  But,  beyond 
this,  the  cultivation  of  this  part  of  the  industry  means 
an  appreciable  reduction  in  the  cost  of  manufacturing 
steel,  and  consequently  lower  prices  to  the  consumer 
and  the  possibility  of  higher  wages  to  the  worker,  as 
well  as  the  elimination  of  waste  and  the  conservation 
of  the  natural  resources  of  a  continent. 

Besides  integration  and  the  achievement  of  economies 
the  early  history  of  the  United  States  Steel  Corporation 
is  largely  a  narrative  of  expansion,  the  building  of  new 
plants  and  the  acquisition  of  other  companies.  First  of 
these  acquisitions  was  the  purchase,  consummated 
about  a  month  after  the  corporation  was  organized,  of 
the  Bessemer  Steamship  Co.,  a  Rockefeller  concern 
engaged  in  trafific  on  the  Great  Lakes  and  which  had 
been  closely  affiliated  with  the  Lake  Superior  Iron 
Mines.  This  company  had  a  fleet  of  56  vessels  (in- 
cluded in  the  number  of  vessels  given  as  taken  over  by 
the  corporation  in  a  previous  chapter).  The  new  or- 
ganization paid  $8,500,000  for  the  stock  of  the  com- 
pany, or  about  $150,000  for  each  vessel  of  the  fleet. 

In  the  same  year  control  of  the  Shelby  Steel  Tube 
Co.,  a  New  Jersey  company  owning  the  principal  basic 
patents   for  the   manufacture   of   seamless   tubes,   and 


46  The  United  States  Steel  Corporation 

having  an  outstanding  capital  of  $5,000,000  of  preferred 
and  $8,150,000  of  common  stock,  was  secured,  the  ex- 
change of  securities  being  made  on  the  basis  of  one 
share  of  U.  S.  Steel  preferred  for  2  2-3  shares  of  Shelby- 
preferred,  and  one  share  of  Steel  common  for  four 
shares  of  Shelby  common  stock.  Practically  all  the 
stock  of  the  Shelby  company— $4,776,100  preferred  and 
$8,018,000  common— was  acquired,  giving  the  corpora- 
tion a  substantial  controlling  interest. 

In  1901  also  the  corporation  purchased  by  exchange 
of  stock  one-sixth  interest  in  the  Oliver  Iron  Mining 
Co.  and  the  Pittsburg  Steamship  Co.  The  Carnegie 
Steel  Co.  already  owned  the  other  five-sixths  of  the 
securities  of  both  these  concerns  and  this  gave  the  cor- 
poration complete  ownership. 

In  December,  1902,  an  important  deal  for  the  absorb- 
tion  of  the  Union  Steel  Co.  was  consummated.  This 
company  was  a  merger,  eflfected  only  a  month  or  so 
previous  to  its  absorbtion  by  the  Steel  Corporation,  of 
the  Union  Steel  Co.,  a  $1,000,000  concern  owning  a 
large  plant  for  the  manufacture  of  wire  rods,  wire  and 
nails  at  Donora,  Pa.,  and  the  Sharon  Steel  Co.,  a  $6,- 
000,000  company  making  a  similar  line  of  products  and 
located  at  Sharon,  Pa.  The  merged  company  had  an 
authorized  capitalization  of  $50,000,000  and  a  capacity 
of  750,000  tons  of  pig  iron  and  850,000  tons  of  ingots 
yearly.  The  purchase  was  carried  out  on  the  following 
basis:  The  Steel  Corporation  guaranteed  an  issue  of 
bonds  on  the  Union-Sharon  properties  amounting  to 
$45,000,000,  of  which  $29,113,500  were  issued  to  pay  for 
the  properties,  $8,512,500  were  purchased  by  the  inter- 
ests controlling  the  properties,  $3,500,000  were  reserved 
to  retire  bonds  outstanding  on  the  property  of  the 
Sharon  company  and  the  balance  was  reserved  to  pro- 
vide for  future  construction  and  improvements.  The 
actual  cost  to  the  corporation  was  fixed  at  $30,860,501, 
as  follows:  bonds  guaranteed  and  issued,  $29,113,500; 
underlying  bonds  assumed,  $3,591,000;  cash  $497,990; 


Early  History.     1901-1907  47 

total  $33,202,490;  less  liquid  assets  taken  over  with 
the  properties,  $2,341,989;  net  cost  $30,860,501. 

By  this  transaction  the  corporation  acquired  five 
blast  and  24  open-hearth  furnaces,  2  blooming  and  slab- 
bing mills,  4  rod  mills,  2  wire  and  nail  mills,  one  skelp 
works,  one  tube  works,  one  plate  mill,  one  tin  plate 
plant,  one  sheet  plant,  a  by-product  coke  plant  of  212 
ovens,  two  modern  ore  steamers,  4,740  acres  of  coking 
coal,  1,524  acres  of  steam  coal,  and  the  ownership  of 
two  mines  and  leases  on  another  two  in  the  Mesabi 
Range  wdth  an  estimated  ore  deposit  of  40,000,000  tons. 

The  absorbtion  of  this  entirely  solvent  and  "going" 
competitor  has  been  criticized  on  the  allegation  that  its 
only  purpose  could  have  been  to  strengthen  the  larger 
company's  supposed  control  of  the  industry,  and  to 
eliminate  competition.  The  reasons  for  the  purchase, 
as  given  by  Judge  Gary,  were  twofold.  The  Union 
Steel  Co.,  he  said,  owned  blast  and  open-hearth  furnaces 
the  securing  of  which  obviated  the  necessity  of  the  cor- 
poration building  others  in  the  same  territory,  which 
it  needed,  and  its  wire  mill  was  particularly  well  located 
for  export  business,  a  prime  consideration  with  the  Steel 
Corporation.  Perhaps  a  more  cogent  reason  was  to  be 
found  in  the  desire  of  the  corporation's  management 
to  center  the  interests  of  H.  C.  Frick  in  the  corporation. 
Mr.  Frick  was  heavily  interested  in  the  Union-Sharon 
concern  and  on  this  account,  although  a  director  of  the 
corporation,  he  did  not  take  a  prominent  part  in  its 
affairs.  His  experience  and  ability  made  his  full  co- 
operation in  the  directorship  of  the  big  company  desir- 
able and  this  had  a  great  deal  to  do  with  the  purchase. 

Seventeen  months  later,  in  May,  1904,  the  Clairton 
Steel  Co.,  which  operated  three  blast  and  50  open- 
hearth  furnaces,  a  rolling  mill,  billet  mill  and  blooming 
mill  at  Clairton,  Pa.,  was  absorbed.  The  company, 
controlled  by  the  Crucible  Steel  Co.,  was  then  in  the 
hands  of  a  receiver  and  its  stock  was  acquired  by  the 
payment  to  the  owners  of  $1,000,000  in  U.  S.  Steel 


48  The  United  States  Steel  Corporation 

bonds  (bought  in  the  open  market  and  costing  the  cor- 
poration $813,850),  and  the  guaranteeing  of  bonds  to 
the  amount  of  $10,230,000  outstanding  against  the  Clair- 
ton  company  and  its  subsidiaries.  The  purchase  also 
brought  to  the  corporation  a  half  interest  in  one  ore 
mine  and  a  lease  of  another  in  the  Mesabi  Range,  about 
20,000  acres  of  mineral  lands  in  the  Marquette  Range, 
2,644  acres  of  coking  coal  lands,  and  working  assets 
of  nearly  $3,000,000. 

Smaller  acquisitions  by  the  corporation  in  the  early 
years  of  its  existence  included  the  Troy  Steel  Products 
Co.,  which  owned  works  at  Troy,  N.  Y,,  with  a  capac- 
ity of  about  200,000  tons  of  slabs  and  skelp  a  year, 
and  the  Trenton  Iron  Co.,  operating  a  rod  mill  with  a 
capacity  of  some  18,000  tons.  The  Troy  company  was 
bought  in  1902  and  operated  a  very  short  time,  it  hav- 
ing proved  unprofitable. 

Hardly  had  the  United  States  Steel  Corporation  com- 
menced operations  than  the  directors  found  themselves 
faced  with  the  necessity  of  raising  additional  working 
capital.  The  $25,000,000  cash  provided  by  the  under- 
writing syndicate  proved  insufficient  for  the  needs  of 
the  giant  industry.  Obligations  entered  into  by  the  con- 
stituent companies  before  the  merger,  it  was  discovered, 
called  for  the  expenditure  of  approximately  $15,000,000, 
and  fully  $10,000,000  was  needed  to  refund  what  were 
classified  as  "purchase  money  obligations."  It  was 
also  thought  desirable  that  expenditures  should  be 
made  for  improvements  and  additions  which,  it  was 
estimated,  would  increase  the  big  company's  earning 
power  at  least  $10,000,000  a  year.  Furthermore  it  was 
deemed  advisable  to  add  from  $10,000,000  to  $15,000,000 
to  the  corporation's  fluid  assets  to  provide  for  further 
expansion  and  to  strengthen  reserves,  as  it  was  ob- 
vious that  if  the  corporation  were  to  need  ready  cash  in 
a  time  of  stress  the  amount  wanted  would  not  be  a  mat- 
ter of  a  million  or  so  but  of  many  millions  and  it  would 
be  impossible  to  obtain  a  very  large  sum  at  such  a  time 


Early  History.     1901-1907  49 

except  at  a  great  loss.  By  increasing  fluid  assets  the 
probability  of  the  need  for  borrowing  would  be  min- 
imized. 

The  issuance  of  $50,000,000  new  preferred  stock  or 
second  mortgage  bonds  was  discussed  at  length,  but 
these  courses  were  not  favored  as  either,  aside  from  the 
initial  expense  in  commissions  to  underwriters,  would 
have  increased  fixed  charges  against  earnings — a  stock 
issue  permanently  and  a  bond  issue  for  the  term  of  its 
life — while  an  increase  in  capital  in  either  of  these  two 
ways  so  shortly  after  the  formation  of  the  corporation 
would  almost  certainly  have  attracted  unfavorable 
comment  and  might  have  severely  affected  the  value 
of  their  holdings  to  owners  of  the  stock  of  the  corpora- 
tion. 

Eventually  what  was  known  as  the  Bond  Conversion 
Plan  was  adopted  and  promulgated.  It  provided  for  the 
issuance  of  $250,000,000  new  second  mortgage  bonds 
and  the  redemption  of  $200,000,000  of  the  outstanding 
preferred  stock,  holders  of  the  stock  being  given  the 
opportunity  to  subscribe  for  the  bonds  to  the  extent 
of  50  per  cent,  of  their  holdings,  40  per  cent,  through 
deposits  of  stock  and  10  per  cent,  in  cash.  A  syndi- 
cate, headed  by  the  Morgan  firm,  was  formed  which 
guaranteed  to  turn  in  not  less  than  $80,000,000  in  stock 
and  $20,000,000  in  cash  in  exchange  for  $100,000,000 
of  the  bonds  to  be  issued.  For  its  work  the  syndicate 
was  to  receive  4  per  cent,  on  the  total  value  of  the 
bonds  actually  issued  under  the  plan,  the  house  of 
Morgan  receiving  one-fifth  of  the  commission,  or  four- 
fifths  of  one  per  cent. 

An  actual,  though  not  immediate,  money  saving,  it 
was  pointed  out,  would  be  effected  under  the  plan. 
Although  the  commissions  to  be  paid  the  syndicate, 
$10,000,000,  would  be  larger  than  in  the  case  of  either 
of  the  two  other  ways  suggested  for  raising  the  new 
capital  required,  the  net  saving  in  annual  interest 
charges  would  be  $1,500,000,  which  would  not  only  re- 


50  The  United  States  Steel  Corporation 

fund  the  commission  in  a  comparatively  short  time 
but  would  be  more  than  sufficient  to  meet  sinking  fund 
requirements  for  paying  off  the  entire  second  mort- 
gage issue  when  it  became  due,  or  in  sixty  years.  The 
actual  gain  in  working  capital,  should  the  plan  prove 
a  success,  would  be  $40,000,000. 

(Redeeming  $200,000,000  of  7  per  cent,  preferred 
stock  would  save  dividend  charges  of  $14,000,000 
yearly,  for  which  would  be  substituted  a  charge  of  5 
per  cent,  on  $250,000,000  bonds,  or  $12,500,000.  The 
amount  required  for  the  sinking  fund  would  be  slightly 
over  $1,000,000  or  less  than  the  net  annual  saving.  And 
a  permanent  capital  reduction  would  be  effected  at 
the  end  of  sixty  years.) 

No  other  action  of  the  corporation's  management,  it 
would  be  safe  to  say,  has  met  with  such  widespread 
disapproval  as  did  the  bond  conversion  plan,  much  of 
the  criticism  coming  from  financial  experts  who  ques- 
tioned the  propriety  of  increasing  the  bonded  debt  of 
the  company  to  so  great  an  extent  with  so  small  an 
actual  gain  in  working  capital  or  resources.  It  was 
characterized  as  dangerous  financing  and  it  is  doubt- 
ful if  all  the  corporation's  directors  were  themselves 
in  full  accord  with  the  operation.  At  a  meeting  held 
on  May  19,  1902,  the  plan  was  submitted  to  a  vote 
of  the  stockholders  and  here  considerable  opposition 
developed  which  led  later  to  the  bringing  of  four  suits 
to  prevent  the  consummation  of  the  plan.  One  of  these 
suits  which  attracted  a  good  deal  of  attention  was 
brought  by  J.  Aspinwall  Hodge,  a  New  York  lawyer. 
But  the  Court  of  Errors  and  Appeals  of  New  Jersey 
eventually  dismissed  these  suits  and  the  offer  to  ex- 
change stock  for  the  bonds — delayed  by  the  suits — was 
finally  made  to  stockholders  in  the  Spring  of  1903. 

In  view  of  the  fact  that  its  avowed  object  was  the 
raising  of  $40,000,000  new  cash  capital,  said  to  be  neces- 
sary, the  plan  can  hardly  be  said  to  have  been  an  emi- 
nent success.     Exclusive   of   the   syndicate   operations 


Early  History.     1901-1907  51 

only  $45,200,000  of  preferred  stock  was  exchanged  by 
stockholders  for  the  bonds  and  the  cash  subscriptions 
for  the  issue  from  the  same  source  amounted  to  the 
insignificant  sum  of  $12,200.  The  syndicate,  at  its  dis- 
solution, turned  in  a  total  of  $150,000,000  in  preferred 
stock  and  $20,000,000  in  cash  (this  of  course  included 
the  $45,200,000  stock  and  $12,200  cash  of  the  outside 
stockholders),  a  total  of  $170,000,000,  and  instead  of  the 
desired  $40,000,000,  the  actual  cash  gain  to  the  corpora- 
tion from  the  transaction  was  $20,000,000,  less  a  syndi- 
cate commission  of  $6,800,000,  or  $13,200,000  net. 

As  the  corporation  has  been  able  to  meet  its  full 
preferred  dividend  requirements  since  its  formation, 
however,  it  is  obvious  that  as  matters  turned  out  it 
has  saved  $2,000,000  a  year  in  interest  charges,  or  in  the 
twelve  years  since  elapsed  $24,000,000,  nearly  four 
times  the  commission  paid  the  syndicate.  The  yearly 
saving  is  also  approximately  double  the  $1,010,000 
which  the  sinking  fund  calls  for,  so  that  the  net  gain 
to  stockholders  from  the  reduction  of  the  preferred 
capital  is  $990,000  a  year.  Looking  into  the  distant 
future  the  saving  after  the  bonds  are  paid  off,  in  48 
years,  will  be  nearly  $9,500,000  annually. 

One  of  the  criticisms  hurled  at  the  plan  was  that 
its  real  object  was  to  enable  the  syndicate,  and  espe- 
cially the  banking  house  of  J.  P.  Morgan  &  Co.,  to 
make  a  profit  at  the  expense  of  the  stockholders.  The 
facts  were  that  the  syndicate  took  a  big  risk  of  the 
bonds  selling  at  less  than  par  after  issuance,  which 
they  did,  and  while  it  is  impossible  to  ascertain  the 
exact  gains  or  losses  incurred,  the  best  opinions  of 
financial  authorities  is  that  Mr.  Morgan  and  his  asso- 
ciates in  the  syndicate  actually  suffered  a  loss  of  some- 
thing like  $8,000,000  from  the  deal. 

It  was  perhaps  natural  that  the  management  of  the 
Steel  Corporation,  in  its  early  existence,  should  have 
been  more  or  less  divided  against  itself.  This  danger 
was  one  of  the  factors  urged  by  its  critics  against  the 


52  The  United  States  Steel  Corporation 

possibility  of  its  success.  Among  its  directors  were 
Phipps,  Frick  and  Schwab,  old  Carnegie  partners,  and 
firm  believers  in  the  Iron  Master's  policy  of  getting 
your  competitor  before  he  got  you.  Gary  was  the  dom- 
inant figure  in  another  faction  that  had  the  foresight 
to  perceive  that  a  new  day  was  dawning  in  industry, 
an  era  of  co-operation  between  manufacturer  and  manu- 
facturer, to  realize  that  the  very  size  of  the  corporation 
rendered  it  subject  to  the  enmity  of  smaller  concerns 
and  to  legal  attack  and  public  disapproval,  and  that 
the  only  way  of  overcoming  this  danger  was  to  gain 
the  good  will  of  all  by  a  open  and  straightforward 
policy.  As  the  years  passed  these  differences  were 
gradually  smoothed  out.  The  directors,  as  a  whole, 
came  to  see  that  Gary's  policy  was  the  right,  in  fact 
the  only  one  to  pursue,  and  harmony  was  gradually 
brought  out  of  the  conflicting  elements  and  opinions. 
With  the  passing  of  the  years  Gary  gained  the  ascend- 
ency in  determining  the  courses  of  action  of  the  cor- 
poration. Always  its  chief  executive  officer  he  eventu- 
ally became,  to  all  intents  and  purposes,  the  corpora- 
tion. And  it  is  a  high  tribute  to  his  judgment  and 
foresight  that  all  of  those  who  disagreed  with  him  at 
first  have  later  admitted,  as  did  Schwab,  in  a  published 
speech,  "He  was  right  and  I  was  wrong." 

Charles  M.  Schwab  did  not  long  remain  as  president 
of  the  corporation.  His  health  broke  down  shortly 
after  its  formation  and,  in  1903,  he  resigned  his  position 
and  sailed  for  a  long  rest  abroad,  later  coming  back 
to  America  to  purchase  control  of  a  small  independent 
concern  and  to  build  up  an  organization  of  his  own 
that  today  ranks  high  among  the  steel  making  com- 
panies of  the  United  States. 

At  the  time  of  Schwab's  resignation  the  Executive 
Committee  was  abolished,  the  position  of  Chairman 
of  the  Board  created,  and  Gary  was  elected  to  that  of- 
fice. William  Ellis  Corey,  President  of  the  Carnegie 
Steel  Co.,  was  chosen  President  of  the  corporation  to 


Early  History.     1901-1907  53 

succeed  Schwab,  on  the  latter's  recommendation,  and 
continued  in  this  capacity  until  the  end  of  1910,  when 
he  resigned  to  be  succeeded  by  James  A.  Farrell,  the 
man  who  had  built  up  the  corporation's  export  trade 
and  who  was  then  President  of  the  United  States  Steel 
Products  Co. 

Before  the  new  born  corporation  had  passed  the  first 
anniversary  of  its  birth  Robert  Bacon  resigned  as  Chair- 
man of  the  Finance  Committee  and  was  succeeded  by 
George  Walbridge  Perkins,  another  Morgan  partner. 
Mr.  Perkins  continued  in  this  ofhce  for  several  years, 
but  later  retired,  since  when  Judge  Gary  has  filled  the 
offices  of  Chairman  of  the  Finance  Committee  and  of 
the  Board.  He  is  by  the  corporation's  by-laws  named 
"chief  executive  officer  in  general  charge  of  the  affairs 
of  the  corporation." 

In  the  first  nine  months  of  its  operations  the  United 
States  Steel  Corporation  reported  net  profits  of  $84,779,- 
298.  After  the  payment  of  sinking  fund  and  interest 
charges  on  the  bonded  debt  $61,420,304  was  left  for 
distribution  to  stockholders.  Dividends  of  5}i  per  cent, 
(at  the  annual  rate  of  7  per  cent.)  on  the  preferred  stock, 
and  3  per  cent,  (at  the  annual  rate  of  4  per  cent.)  on  the 
junior  issue,  were  paid,  the  balance  after  these  disburse- 
ments, $19,414,497,  being  carried  to  surplus  account. 

In  1902  a  gross  business  of  $560,510,479  was  done 
and  the  net  profits  therefrom  were  $133,308,764.  The 
year  was  a  fairly  profitable  one  and  although  a  special 
appropriation  of  $10,000,000  for  new  construction  was 
made  and  over  $14,000,000  was  put  aside  for  deprecia- 
tion and  extraordinary  replacement,  the  big  company 
was  able  to  show  the  full  dividends  earned  on  its  stock 
of  both  classes  and  a  surplus  balance  of  $34,253,657. 

The  following  year  was  one  of  general  business  de- 
pression and  the  steel  industry,  the  barometer  of  trade, 
was  seriously  affected.  The  result  to  the  corporation 
is  shown  best  by  the  simple  fact  that  on  December 
31,  1903,  unfilled  orders  on  the  books  of  the  subsidiary 


54  The  United  States  Steel  Corporation 

companies  aggregated  3,215,123  tons,  against  5,347,253 
tons  a  year  previous.  This  falling  off  in  orders  was  ac- 
companied by  declining  prices  and  the  directors  of  the 
corporation  were  impelled  to  reduce  the  quarterly  divi- 
dend on  the  common  stock  for  the  third  quarter  from 
1  per  cent  to  one-half  of  1  per  cent,  and  to  pass  the 
junior  dividend  altogether  in  the  final  quarter.  Gross 
sales  for  the  year  were  $536,572,871,  and  net  profits 
$109,171,152,  the  surplus  for  the  period  being  $12,304,- 
917. 

Several  changes  in  the  make-up  of  the  subsidiary  com- 
panies occurred  in  this  year.  The  most  important  was 
the  incorporation  of  the  United  States  Steel  Products 
Export  Co.  (the  "Export"  was  later  dropped  from  the 
title),  headed  by  Farrell,  to  conduct  the  corporation's 
foreign  business.  The  Carnegie  and  National  Steel  com- 
panies and  the  American  Steel  Hoop  Co.  were  merged 
into  one  concern,  known  first  as  the  National  Steel  Co., 
the  name  being  later  changed  to  the  Carnegie  Steel  Co. 
Lastly  the  American  Tin  Plate  Co.  and  the  American 
Sheet  Steel  Co.  were  consolidated  as  the  American 
Sheet  &  Tin  Plate  Co. 

The  depression  that  began  in  1903  lasted  well  into  the 
year  following  and  affected  earnings  of  the  corporation 
to  such  an  extent  that,  for  the  first  and  only  time  in  its 
history,  the  wages  of  the  men  employed  in  the  plants 
were  reduced.  Gross  sales  for  the  year  were  only  $444,- 
405,431,  and  net  profits  $73,176,522.  No  special  appro- 
priation for  new  construction  was  made  and,  despite  the 
small  profits,  the  corporation  managed  to  show  a  sur- 
plus after  the  payment  of  the  full  preferred  dividend  of 
$5,047,852. 

But  the  wave  of  prosperity  was  returning.  The  first 
signs  made  themselves  felt  in  the  late  months  of  1904 
and  the  corporation's  earnings  showed  marked  improve- 
ment in  1905.  Gross  sales  amounted  in  value  to  $585,- 
331,736,  and  net  profits  to  $119,787,658. 

A  surplus  of  $43,365,815  was  reported  after  the  pre- 


Early  History.     1901-1907  55 

ferred  dividend  payment,  but  $26,300,000  was  deducted 
for  new  construction  in  contemplation,  so  that  the  net 
amount  added  to  surplus  was  $17,065,815.  In  this  year 
production  reached  the  highest  mark  so  far  recorded 
by  the  big  company,  the  output  of  pig  iron  being  10,- 
172,148  tons,  of  ingot  steel  nearly  12,000,000  tons,  and 
of  rolled  products  9,226,386  tons. 

In  the  annual  report  for  1905  is  found  the  following 
statement  by  Judge  Gary :  "It  has  been  decided  to  con- 
struct and  put  into  operation  a  new  plant  to  be  located 
on  the  south  shore  of  Lake  Michigan,  in  Calumet  Town- 
ship, Lake  County,  Indiana,  and  a  large  acreage  of  land 
has  been  purchased  for  that  purpose.  It  is  proposed 
to  construct  a  plant  of  the  most  modern  stand- 
ard. *  *  *" 

About  the  time  these  words  were  being  written  work 
on  the  new  plant  was  being  started  and  the  foundations 
of  a  new  city,  now  having  a  population  of  40,000,  were 
being  laid.  It  is  appropriate  that  the  name  chosen  for 
this  town  should  have  been  Gary,  although  Judge  Gary 
had  nothing  to  do  with  the  selection  of  the  name. 

All  previous  records  for  production  and  profits  were 
shattered  in  1906.  The  betterment  in  steel  conditions 
that  started  in  1905  continued  throughout  the  ensuing 
year,  and,  indeed,  until  the  latter  part  of  1907,  when  the 
disastrous  panic  occurred.  The  corporation's  report  for 
1906  showed  that  it  had  increased  its  capacity  for  pig 
iron  production  over  63  per  cent,  and  its  steel  capacity 
nearly  57  per  cent,  between  the  date  of  its  organization 
and  January  1,  1907,  and  this  increase  enabled  it  to  take 
advantage  of  the  business  betterment  and  to  profit 
thereby.  In  1906  the  corporation's  blast  furnaces  poured 
out  11,267,377  tons  of  pig  iron,  while  its  steel  plants  pro- 
duced over  13,500,000  tons  of  ingots  and  10,578,000  tons 
of  finished  material.  The  gross  sales  of  the  year 
amounted  to  $696,756,926,  and  the  net  profits  to  $156,- 
624,273. 

These  large  earnings  justified  the  resumption  of  divi- 


oG  The  United  States  Steel  Corporation 

dends  on  the  junior  stock  and  2  per  cent,  on  the  issue 
was  paid.  The  balance  after  dividends  was  $62,742,- 
860,  but  special  appropriations  for  proposed  expendi- 
tures on  the  Gary  plant  and  for  other  purposes  were 
made,  calling  for  $50,000,000,  this  reducing  the  net  car- 
ried to  surplus  account  to  $12,742,860. 

Another  important  event  of  the  year  in  the  corpora- 
tion's history  was  the  incorporation  of  the  Universal 
Portland  Cement  Co.,  which  was  formed  to  take  over 
the  cement  plants  operated  by  the  Illinois  Steel  Co., 
and  to  erect  new  plants  for  the  manufacture  of  this  prof- 
itable by-product.  The  production  of  cement  had  grown 
from  486,357  barrels  in  1902  to  2,076,000  barrels  in 
1906.  The  Universal  company  immediately  started  work 
on  the  erection  of  two  new  plants,  one  at  Buffington, 
Indiana,  within  a  few  miles  of  the  Gary  plant,  and  the 
other  at  Universal,  Pa.,  near  Pittsburgh.  The  results  of 
this  enterprise  have  entirely  justified  the  expectations 
of  the  corporation's  management  and  the  manufacture 
of  the  by-product  has  increased  until  an  output  of  11,- 
197,000  barrels  was  reached  in  1913. 

But  the  most  notable  event  of  1906  was  the  negotia- 
tion of  a  lease  by  the  corporation  on  the  ore  properties 
owned  by  the  Great  Northern  and  Northern  Pacific 
railway  companies,  commonly  known  as  the  Hill  Lease. 

That  the  corporation  would  eventually  make  some 
arrangement  to  secure  control  of  the  mining  rights  on 
the  Hill  ore  properties  had  long  been  believed  in  the 
steel  trade.  It  was  pointed  out  by  trade  authorities 
that  the  big  company  did  not  have  ore  reserves  com- 
mensurate with  its  immense  output  and  the  obvious 
conclusion  was  that  it  would  not  fail  to  secure  such  re- 
serves sooner  or  later.  The  vast  properties  in  the  Mes- 
abi  Range  owned  by  the  railroads  dominated  by  James 
J.  Hill  constituted,  it  was  claimed,  the  only  commer- 
cially valuable  supply  of  importance  which  had  not  yet 
been  appropriated  by  one  steel  company  or  another,  so 
the  natural  conclusion  was  that  the  corporation  must 
eventually  attach  to  itself  these  supplies  of  ore. 


Early  History.     1901-1907  57 

Negotiations  leading  up  to  the  lease  went  on  for  sev- 
eral years  before  the  matter  was  finally  brought  to  a 
head  in  December,  1906.  The  lease,  which  was  prob- 
ably the  most  voluminous  d(jcunient  of  its  kind  ever 
written,  gave  the  corporation  the  right  to  mine  the  Hill 
ores  until  exhaustion,  or,  at  the  corporation's  option, 
until  January  1.  1915,  the  exercise  of  this  option  being 
contingent  upon  a  two  year  notice  to  be  given  before 
that  date.  The  corporation  declined  to  enter  into  the 
lease  unless  it  should  contain  a  provision  for  cancella- 
tion, and  it  later  exercised  this  right,  the  directors  at  the 
close  of  1912  serving  notice  of  their  intention  to  aban- 
don the  lease  in  two  years. 

Comprised  in  the  Great  Northern  ore  lands  were 
some  of  the  richest  and  best  iron  deposits  in  the  coun- 
try. Of  a  total  area  of  over  65,000  acres  owned  or  leased 
by  the  Hill  interests,  39,296  acres  with  an  estimated  ore 
content  of  something  like  half  a  billion  tons  were  in- 
cluded in  the  lease  to  the  Great  Western  Mining  Co.,  a 
Steel  Corporation  subsidiary  and  the  nominal  lessee. 

The  volume  of  ore  to  be  mined  and  the  royalties  to 
be  paid  were  arranged  on  an  ascending  scale.  In  1907 
the  Great  Western  company  was  to  take  out  750,000 
tons  of  ore  and  this  tonnage  was  to  be  increased  by  as 
much  again  every  year  the  lease  continued  up  to  1917, 
when  the  tonnage  to  be  mined  was  fixed  at  8,250,000 
tons,  at  which  figure  it  was  to  remain  thenceforward 
until  the  contract  was  expired  by  reason  of  ore  ex- 
haustion. 

Royalties  on  the  ore  mined  were  based  on  a  price 
of  85  cents  per  ton  of  dried  ore  with  a  metallic  content 
of  59  per  cent,  for  the  first  year  of  the  lease,  this  base 
price  being  increased  by  3.4  cents  a  ton  each  year — 
i.  e.,  to  88.4  cents  in  1908,  91.8  cents  in  1909,  etc.  To 
this  royalty  was  to  be  added  transportation  charges  of 
80  cents  a  ton  to  the  docks  at  Superior,  Wis.,  the  con- 
tract providing  that  all  the  ore  was  to  be  shipped  via 
the  Great  Northern  Railway.     For  each  variation  of  1 


58  The  United  States  Steel  Corporation 

per  cent,  above  or  below  the  59  per  cent,  metallic  con- 
tent, it  was  further  stipulated,  the  base  price  was  to  be 
increased  or  diminished  by  4.82  cents  a  ton. 

Critics  of  the  corporation  have  charged  that  the  Hill 
lease  was  entered  into  with  a  view  of  giving  the  big 
company  a  practical  monopoly  of  the  ore  reserves  of 
the  country.  Those  responsible  for  the  deal  have 
strongly  asserted  that  their  sole  object  was  to  ensure 
an  adequate  ore  reserve  for  the  future.  The  question 
resolves  into  one  of  motives  and  is  therefore  not  sus- 
ceptible of  proof.  But  whatever  were  the  motives  of 
the  Steel  Corporation's  management  the  fact  remains 
that,  according  to  the  opinions  of  the  best  qualified  ex- 
perts outside  the  corporation  itself,  the  big  company, 
at  the  time  the  lease  was  made,  did  not  have  a  supply 
of  ore  such  as  its  vast  output  demanded,  and  does  not 
now  have  such  a  necessary  supply.  Further,  it  is  doubt- 
ful if,  outside  of  the  Hill  holdings,  a  large  enough  re- 
serve of  commercially  available  ore  is  to  be  obtained 
in  the  United  States. 

The  claim  that  the  royalties  paid  under  the  Hill  lease 
were  too  high  is  borne  out  by  the  undisputed  fact  that 
royalties  paid  on  other  ore  deposits  in  the  same 
territory  at  the  time  of  the  signing  of  the  contract  were 
much  lower  than  those  paid  under  the  lease  by  the 
corporation.  Unusual  conditions  governed  this  trans- 
action, however.  The  lessors  were  well  aware  of  the 
corporation's  need  of  ore  and  that  they  were  probably 
the  only  ones  in  a  position  to  fill  this  need.  They  were 
therefore  able  to  drive  a  hard  bargain.  The  price  orig- 
inally demanded  by  Mr.  Hill  and  his  associates,  it  is 
understood,  was  one  dollar  a  ton  and  it  took  some  three 
years'  negotiations  before  a  price  which  both  parties 
to  the  matter  would  accept  could  be  arrived  at. 

What  was  the  reason  for  the  cancellation  of  the  lease? 
It  is  generally  thought  that  the  directors  of  the  corpora- 
tion were  impelled  to  their  decision  by  the  report  of 
Commissioner  of  Corporations,  Herbert  Knox  Smith, 


Early  History.     1901-1907  59 

who  conducted  a  searching  investigation  into  the  cor- 
poration's activities  and  severely  criticized  the  lease, 
and  by  the  fear  that  it  would  be  made  much  of  by  the 
Federal  Government  in  its  suit  for  the  dissolution  of 
the  "Steel  Trust"  which  was  pending  at  the  time  of  the 
cancellation.  And  these  considerations  did  have  weight 
in  bringing  about  the  decision.  But  the  more  cogent 
reason  was  a  purely  business  one — the  lease  had  not 
proved  as  profitable  as  had  been  hoped.  The  iron  con- 
tent of  the  Hill  ores,  it  is  understood,  had  not  measured 
up  to  expectations,  the  cost  of  concentrating  the  ore 
proved  too  high,  and  on  the  whole  the  deal  had  become 
rather  a  burden  than  otherwise  to  the  lessee. 

Up  to  the  end  of  1906  the  United  States  Steel  Cor- 
poration had  spent  over  $200,000,000  in  the  acquisition 
of  new  properties,  the  construction  of  new  plants  and 
the  extension  of  old.  Its  productive  capacity  had  been 
increased  enormously.  Its  plants  were  now  in  excellent 
shape,  its  organization  in  perfect  working  order.  Prices 
were  high  and  it  had,  at  the  close  of  the  year,  nearly 
8,500,000  tons  of  business  on  its  books.  Its  early  diffi- 
culties were  past  and  it  seemed  about  to  enter  into  the 
heyday  of  its  prosperity, 


CHAPTER  IV 
THE  TENNESSEE  PURCHASE 

ON  the  events  of  the  year  1907  the  United  States 
Steel  Corporation  must,  to  a  certain  extent,  stand 
or  fall  at  the  bar  of  public  judgment.  This 
was  the  year  of  the  panic  and  of  the  Tennessee  Coal, 
Iron  &  Railroad  purchase.  The  panic,  enemies  of  the 
corporation  assert,  was  precipitated  by  the  big  "trust" 
by  the  immoral  use  of  its  immense  financial  resources 
to  enable  it  to  "gobble  up"  the  properties  of  the  Ten- 
nessee company,  a  competitor  said  to  have  been  mak- 
ing big  inroads  into  the  business  of  the  larger  concern 
and  which  it  had  therefore  become  necessary  either  to 
destroy  or  absorb.  The  friends  of  the  corporation,  on 
the  other  hand,  are  equally  emphatic  in  asseverating 
that  the  competition  offered  by  the  Tennessee  company 
was  not  such  as  to  cause  anxiety  to  the  management 
of  the  Steel  Corporation,  that  it  was  not  a  very  valuable 
property  and  that  the  corporation  purchased  its  stock 
only  upon  solicitation  by  the  interests  controlling  the 
company  and  their  assurance  that  a  refusal  to  do  so 
would  result  in  the  failure  of  an  important  security 
house,  which  would  add  greatly  to  the  severity  and 
danger  of  the  panic.  They  claim  further  that  the  price 
paid  was  more  than  the  actual  value  of  the  stock  and 
that,  far  from  using  any  advantage  it  may  have  had  to 
squeeze  the  smaller  concern,  the  "Steel  Trust,"  against 
the  better  judgment  of  its  management  and  with  the 
single  purpose  of  alleviating  the  panic  dangers,  paid 
for  the  securities  it  took  over  something  like  60  per 
cent,  more  than  good  business  practice  seemed  to  war- 
rant 


62  The  United  States  Steel  Corporation 

If  the  claims  of  the  first  are  correct  and  the  corpora- 
tion did  use  its  power  to  force  a  competitor  to  the  wall, 
regardless  of  the  fact  that  in  so  doing  it  was  bringing 
misery  and  calamity  to  the  ninety  millions  of  people  of 
the  United  States,  this  act  alone  must  be  more  than 
sufficient  to  convict  it  on  a  more  serious  charge  than 
"monopoly  in  restraint  of  trade" — of  high  treason  and 
betrayal  of  the  trust  which  big  business,  willy  nilly, 
undertakes.  But  if  the  corporation,  through  its  di- 
rectors, put  the  national  welfare  before  all  other  con- 
siderations this,  conversely,  should  prejudice  public 
opinion,  properly  informed,  in  its  favor.  And  this  is 
why  the  year  was  by  far  the  most  important  epoch  in 
the  corporation's  history  and  its  events  are  worthy  of 
careful  consideration. 

And  here  let  me  state  that  although  I  have  made  a 
careful  search  through  all  the  evidence  submitted  by 
the  Government  to  this  end  in  its  pending  suit  against 
the  big  company,  I  have  failed  to  find  one  iota  of  evi- 
dence which,  so  far  as  I  can  see,  connects  the  corpora- 
tion with  the  panic  or  upholds  the  charge  that  it  con- 
spired to  force  the  Tennessee  stockholders  to  sell.  Not 
long  ago  I  put  the  question  bluntly  to  a  man  who  had 
been  a  member  of  the  syndicate  that  controlled  the  for- 
tunes of  the  Tennessee  company  before  it  was  absorbed 
and  who,  if  the  allegations  referred  to  are  correct,  was 
one  of  those  who  suffered  at  the  corporation's  hands: 
"Did  the  Steel  Corporation  use  its  power  to  create  the 
panic  of  1907  so  as  to  gain  possession  of  the  Tennessee 
stock?"  He  replied:  "Absurd.  The  charge  is  baseless 
— except  in  politics.  The  sale  of  the  Tennessee  com- 
pany was  an  incident  arising  in  the  course  of  the  panic, 
not  a  cause.  The  corporation  was  offered  a  chance  to 
get  what  I  consider  a  valuable  property  and  seized  it. 
But  let  me  tell  you,"  he  added,  "the  corporation  did  not 
get  the  property  cheap." 

The  Tennessee  Coal,  Iron  &  Railroad  Co.  was  a  re- 
organization of  an  earlier  concern    of  the    same  name 


The  Tennessee  Purchase  63 

located  in  Alabama.  The  reorganization  brought  into 
control  of  the  company  new  and  powerful  interests,  and 
these  spent  a  good  deal  of  money  in  improving  the 
plants,  so  that,  about  the  beginning  of  1907,  it  was 
pointed  to  as  a  probable  important  competitor  of  the 
corporation.  It  was  also  considered  as  the  nucleus  for 
a  possible  merger  of  the  steel  making  concerns  of  the 
South  such  as  would  be  able  to  cut  severely  into  the 
corporation's  business.  Not  long  before  the  panic 
broke  the  company  secured  an  order  from  the  railroads 
controlled  by  the  late  E.  H.  Harriman  for  150,000  tons 
of  steel  rails  and  it  was  supposed  by  some  that  the  loss 
of  this  order  had  caused  considerable  worriment  to  the 
heads  of  the  Steel  Corporation — which  doubtless  it  did. 
Then  came  the  panic,  and  when  its  dust  cleared  away 
the  Tennessee  company  was  a  subsidiary  of  the  "Steel 
Trust."  The  sequence  has  served  to  lend  plausi- 
bility to  the  charges  made  against  the  corporation  in 
connection  with  the  purchase.  But  a  full  recital  of  the 
events  bearing  on  the  deal  tends  to  throw  a  different 
light  on  the  matter,  and  an  attempt  to  set  down  the 
more  important  of  these  details  will  be  made  here. 

Emphasis  has  been  laid  on  the  Harriman  order,  par- 
ticularly because  the  Tennessee  company  had  con- 
tracted to  supply  the  lines  controlled  by  the  great  rail- 
road magnate  with  the  new  open  hearth  steel  rail,  then 
coming  into  popular  favor  with  the  railroad  experts 
and  which  today  are  used  almost  exclusively  by  the 
larger  transportation  systems.  It  has  been  alleged  that 
the  corporation  was  very  desirous  of  adding  to  its 
properties  the  plants  making  this  new  kind  of  steel  rail 
and  getting  immediate  control  of  their  manufacture. 
The  facts  are  that  the  southern  company  did  not  make 
a  pure  open  hearth  rail,  its  steel  being  made  by  a  com- 
bination of  the  bessemer  and  open  hearth  processes, 
and  the  corporation  at  the  time  was  engaged  in  build- 
ing its  new  plant  at  Gary,  a  plant  which  was  to  include 
a  large  rail  mill  to  make  open  hearth  rails  exclusively. 


64  The  United  States  Steel  Corporation 

When  the  corporation  took  charge  of  the  Tennessee 
properties  it  was  found  that  the  company's  rail  mill  was 
being  operated  at  a  loss  of  nearly  $4  a  ton.  Further,  a 
very  large  percentage  of  the  rails  which  had  been  sup- 
plied the  Harriman  roads  before  the  transfer  of  the 
properties  proved  defective  and  the  new  management 
had  to  bear  the  loss  of  replacing  these. 

It  is  unnecessary  and  futile,  in  this  brief  chapter,  to 
go  fully  into  the  story  of  the  panic  of  1907,  or  of  the 
events  that  preceded  it.  Suffice  it  to  say  that  the  panic 
followed  a  period  of  enormous  expansion  and  of  exten- 
sion of  credit  eventually  carried  to  a  point  where  busi- 
ness overreached  itself  and,  in  a  country  lacking  an 
elastic  currency  system,  such  as  the  United  States  then 
was,  financial  stringency  was  bound  to  follow.  The 
first  rumblings  of  the  coming  storm  went  unheeded  and 
it  was  not  until  late  in  the  year  that  there  was  any 
realization  of  the  desperate  state  of  affairs.  Then  one 
big  trust  company  closed  its  doors  and  was  followed 
by  others.  Banks  stopped  specie  payments,  stocks 
tumbled  headlong  on  the  exchanges  of  the  country,  in- 
dustry halted,  throwing  thousands  out  of  employment, 
and  the  financial  hurricane  swept  over  the  country, 
leaving  ruin  in  its  wake  and  making  its  effects  felt 
over  the  whole  world. 

While  the  panic  came  like  a  thunderclap  to  the  aver- 
age citizen,  without  warning,  the  big  bankers  had  seen 
the  danger  threatening  and  had  made  an  effort  to  pre- 
vent any  occurrence  which  might  precipitate  matters. 
In  the  latter  part  of  October  rumors  gained  circulation 
that  the  Knickerbocker  Trust  Co.,  one  of  the  leading 
financial  institutions  of  New  York  City,  was  in  trouble 
and  the  late  J.  Pierpont  Morgan,  who  had  assumed  the 
leadership  of  the  country's  bankers  in  the  crisis,  and 
others,  had  an  examination  made  of  the  company's  af- 
fairs with  a  view  to  rendering  it  assistance.  Apparently 
the  result  of  this  investigation  was  unsatisfactory.  Any- 
way, the  Knickerbocker  Trust  Co.  was  abandoned  to  its 


The  Tennessee  Purchase  65 

fate  and,  at  fifteen  minutes  to  one,  on  October  22,  closed 
its  doors  after  a  sensational  run,  many  stock  exchange 
firms  being  overwhelmed  in  the  crash. 

Thus  did  the  panic  storm  break.  Rumors  of  trouble 
in  connection  with  other  institutions  then  came  thick 
and  fast,  and  one  concern,  the  Trust  Co.  of  America, 
was  especially  talked  of.  This  institution  had  a  capital 
of  $2,000,000  and  resources  of  $74,000,000,  including 
$12,000,000  cash  in  its  vaults  at  the  time.  Under  nor- 
mal conditions  it  was  perfectly  solvent  and  able  to 
meet  its  depositors'  claims,  but  that  it  was  not  in  a  posi- 
tion to  withstand  a  prolonged  run  was  proved  by  sub- 
sequent events.  Realizing  that  the  failure  of  the  Trust 
Co.  of  America  would  make  the  crisis  far  more  acute, 
Mr.  Morgan  and  his  associates  resolved  to  come  to  its 
assistance,  provided  it  could  prove  that  its  statements 
of  condition  were  correct. 

Meanwhile  George  Cortelyou,  Secretary  of  the  United 
States  Treasury,  had  hurried  on  to  New  York  from 
Washington  and  on  the  night  of  the  22d  he  held  a  con- 
ference at  the  Hotel  Manhattan  with  Morgan,  George 
W.  Perkins,  one  of  his  partners,  James  Stillman  and 
Henry  P.  Davison  of  the  National  City  Bank,  and 
others.  After  the  conference,  which  lasted  over  the 
greater  part  of  the  evening,  Perkins  and  Davison 
adjourned  to  the  Union  League  Club,  where  they  were 
met  by  Oakleigh  Thorne,  president  of  the  Trust  Co.  of 
America,  who  had  been  summoned  by  telephone. 

These  were  strenuous  days  for  bankers.  No  com- 
ing downtown  late  and  leaving  early.  The  confab  at 
the  club  started  at  nearly  midnight  and  lasted  until 
long  after.  Thorne  made  a  statement  of  the  financial 
condition  of  his  company  and  the  others  promised  that, 
if  the  facts  were  as  represented,  he  would  be  assisted. 
No  time  was  to  be  lost.  Perkins  immediately  arranged 
for  the  examination  and  Thorne  was  at  his  desk  at  half 
past  six  on  the  morning  of  the  23d.  By  seven  the  ex- 
aminers were  at  work. 


66  The  United  States  Steel  Corporation 

But  the  newspapers  were  on  the  watch  and  the  fact 
that  the  Trust  Co,  of  America  was  in  need  of  assistance 
was  known  and  discussed  over  the  breakfast  tables  of 
New  York,  and  in  fact,  of  the  country.  By  the  time 
the  company  opened  its  doors  that  day  there  was  a 
clamorous  mob  outside,  each  individual  seeking  to  save 
himself  before  the  crash  came,  and  the  crowd  surged 
through  the  doors  and  up  to  the  paying  teller's  window, 
demanding  its  money. 

In  vain  did  the  officers  of  the  company  put  seven 
tellers  to  work  instead  of  the  usual  one,  in  vain  were 
all  deposits  paid  promptly  and  unhesitatingly.  Denser 
and  denser  grew  the  crowd  of  depositors  and  it  became 
obvious  that  the  millions  that  had  been  passed  over  the 
counters  in  the  morning  hours  would  not  suffice  to 
stem  the  tide.  Thorne  hurried  over  to  the  Morgan 
offices  and  there  succeeded  in  obtaining  $2,500,000  im- 
mediately. This  loan  was  subsequently  augmented  by 
another  of  $10,000,000  made  a  few  days  later  and  a 
third  of  $15,000,000  made  early  in  November. 

On  this  one  day,  October  23d,  $13,500,000  was  paid 
out  over  the  trust  company's  counters !  But  this  was 
not  enough  to  stem  the  run  which  continued  for  over 
a  week  and  did  not  abate  until,  so  far  as  can  be  esti- 
mated, something  between  $30,000,000  and  $35,000,000 
was  paid  to  depositors. 

But  the  Trust  Co.  of  America  was  saved.  It  has  been 
claimed  that  the  price  of  its  salvation  was  the  sur- 
render by  its  president  of  some  5,500  shares  of  Ten- 
nessee Coal,  Iron  &  Railroad  stock  which  he  owned. 
It  seems  plain,  however,  that  the  suggestion  that  the 
Steel  Corporation  should  take  over  the  control  of  the 
Tennessee  company  came  first  from  the  people  who 
had  the  majority  stock  of  the  company  and  after  the 
beginning  of  November,  before  which  time  the  bank- 
ers, headed  by  Morgan,  had  loaned  the  trust  company 
$12,500,000  without  any  mention  of  or  question  regard- 
ing the  stock.     It  also  appears    that    the  transfer  of 


The  Tennessee  Purchase  67 

Thome's  stock  to  the  corporation  had  no  connection 
whatsoever  with  the  trust  company's  difficulties  and  its 
extrication  therefrom,  but  was  part  of  a  separate  and 
distinct  transaction. 

Particular  attention  has  been  given  here  to  the  affairs 
of  the  Trust  Co.  of  America,  because  of  the  allegations 
connecting  the  help  rendered  the  company  with  the 
Tennessee  purchase.  But  it  really  constituted  only  a 
small  part  of  the  situation  with  which  Morgan  and  his 
fellow  bankers  were  faced.  There  were  many  others 
that  needed  help,  banking  institutions,  investment 
houses,  brokers  and  so  on.  The  whole  financial  com- 
munity had  turned  to  Morgan  as  its  Joshua  to  lead  it 
out  of  the  desert.  Upon  his  shoulders  fell  the  burden 
of  saving  the  country  from  financial  ruin. 

The  Morgan  library  became  as  the  headquarters  of 
an  army.  Here  were  congregated  at  all  hours  of  the 
day  and  night  bankers,  brokers,  business  men  of  all 
kinds,  both  those  who  needed  help  and  those  who  could 
assist  the  banker  in  the  work  he  had  thrust  upon  him 
and  the  arduous  duties  which  he  had  assumed.  Men 
rushed  in  and  out  of  that  library,  pleaded  for  help, 
begged  for  information  and,  awaiting  their  turn,  even 
slept  in  its  luxurious  chairs. 

The  task  that  Morgan  and  his  associates  had  under- 
taken was  one  of  exceedingly  great  difficulty.  Despite 
all  that  had  been  done  to  dam  the  torrent  of  financial 
disruption  and  the  fact  that  each  weak  spot  was 
strengthened  as  soon  as  discovered,  the  banker  knew 
that  his  herculean  efforts  might  be  brought  to  nothing 
by  one  big  failure  which  would  let  loose  the  panic  fears 
it  was  sought  to  allay.  Hence  it  may  be  imagined  with 
what  consternation  the  financier  received  the  news, 
brought  to  him  by  Lewis  Cass  Ledyard,  a  prominent 
lawyer  and  a  close  friend  of  his,  that  Moore  &  Schley, 
one  of  the  leading  brokerage  firms  in  the  "Street,"  was 
in  serious  difficulties  and  needed  several  millions  of 
dollars  to  save  it  from  disaster. 


68  The  United  States  Steel  Corporation 

Moore  &  Schley  was  deeply  mixed  up  with  the  af- 
fairs of  the  Tennessee  Coal,  Iron  &  Railroad  Co.  One 
of  the  members  of  the  firm  was  a  member  of  the  syndi- 
cate that  controlled  the  company  and  Tennessee  stock 
constituted  a  considerable  proportion  of  the  collateral 
which  it  had  put  up  to  secure  loans  for  itself  and  its 
customers.  This  stock,  considered  good  collateral  in 
normal  times,  failed  to  find  favor  with  the  bankers  to 
whom  Moore  &  Schley  was  heavily  committed  in  the 
time  of  stress,  and  the  brokers  were  called  on  to  replace 
the  securities  with  others  of  a  more  approved  charac- 
ter— which  they  were  unable  to  do — or  to  suffer  the 
calling  of  their  loans  and  consequent  bankruptcy. 

Only  two  courses  were  open  to  the  brokers,  either 
to  borrow  a  sum  large  enough  to  meet  their  loans  or 
to  negotiate  an  exchange  of  the  Tennessee  stock  for 
some  other  security  which  the  banks  would  accept. 
They  chose  the  latter  and,  realizing  that  the  United 
States  Steel  Corporation  was  the  only  possible  buyer 
of  the  Tennessee  stock,  approached  Morgan  through 
Ledyard  to  that  end. 

Suggestions  that  the  Steel  Corporation  should  pur- 
chase control  of  the  Tennessee  properties  had  been 
made  in  the  past  to  the  corporation  interests  by  one 
or  more  of  the  directors  of  the  southern  company.  It 
does  not  appear,  however,  that  these  suggestions  were 
authorized  by  the  Tennessee  syndicate  as  a  whole.  Be 
that  as  it  may,  they  came  to  naught,  as  the  directors 
in  question  seemed  to  have  a  very  high  idea  of  the 
value  of  the  Tennessee  stock  and  the  divergence  of 
opinion  on  this  question  between  them  and  the  pos- 
sible purchasers  was  so  great  that  no  middle  ground 
was  possible.  Never  did  the  tentative  offers  to  sell 
reach  a  point  where  they  were  worthy  of  the  term 
"negotiations." 

One  of  the  reasons  alleged  for  the  Steel  Corpora- 
tion's supposed  fear  of  the  Tennessee  company's  com- 
petition W3S  that  the  company  was  the  potential  basis 


The  Tennessee  Purchase  69 

for  a  merger  of  the  steel  concerns  in  the  South  which 
would  not  only  be  strong  enough  to  offer  a  stubborn 
fight  to  the  "trust"  for  business  in  the  section  below  the 
Mason  and  Dixon  line,  but  would  have  a  distinct  ad- 
vantage over  in  exporting  steel  to  Mexico  and  Cen- 
tral and  South  America, 

John  A.  Topping,  head  of  the  Tennessee  Coal,  Iron 
&  Railroad  Co.  and  of  the  Republic  Iron  &  Steel  Co. — 
dominated  by  the  same  interests — had  actually  taken 
steps  for  the  establishment  of  a  market  on  the  Gulf 
coast.  In  the  Rivers  and  Harbors  Act  of  1899  the  con- 
struction of  locks  and  dams  and  other  improvements  on 
the  Warrior  River  so  as  to  give  slack  water  communica- 
tion between  Birmingham,  Ala.,  near  which  city  the 
mills  of  the  Tennessee  company  were  situated,  and  Mo- 
bile, was  decided  on.  But  the  matter  rested  there  un- 
til Topping,  by  his  efforts,  secured  an  appropriation 
to  carry  out  the  improvements,  which,  it  happens, 
should  be  completed  about  the  time  this  is  published. 
Not  only  would  the  water  route  have  been  important 
to  the  Tennessee  company  in  regard  to  the  markets 
mentioned,  but  it  would  have  enabled  the  company  to 
enter  the  markets  on  the  northern  Atlantic  coast  of  the 
United  States,  from  which  it  had  been  debarred  by  the 
high  rail  freight  rates. 

Reports  that  a  steel  merger  in  the  South  was  con- 
templated or  actually  under  way  had  been  circulated 
from  time  to  time.  The  three  companies  mentioned  as 
constituting  the  consolidation  were  the  Tennessee  Coal, 
Iron  &  Railroad  Co.,  the  Republic  Iron  &  Steel  Co., 
and  the  Sloss  Sheffield  Steel  &  Iron  Co.  Other  less 
important  concerns  were  also  suggested.  The  Sloss 
Sheffield  company  was  engaged  entirely  in  the  manu- 
facture of  iron  and  was  a  rather  small  concern  as  com- 
pared with  the  steel  giants  of  the  day.  But  it  was  con- 
servatively capitalized  and  managed  and  had — and 
still  has — an  unbroken  dividend  record  in  respect  to 
its  preferred  stock.     At  its  head  was,  and  is,  Colonel 


70  The  United  States  Steel  Corporation 

J.  C.  Maben,  a  veteran  iron  maker  and  one  of  the  best 
known  and  most  respected  figures  in  the  industry. 
Colonel  Maben  was  approached  by  one  of  the  Ten- 
nessee directors  with  a  merger  proposition,  but  refused 
to  consider  it  because,  as  he  has  since  said,  he  did  not 
think  the  financial  condition  of  the  Tennessee  company 
sound.  If  there  had  ever  been  any  possibility  of  the 
merger  going  through,  Colonel  Maben's  attitude  would 
have  effectually  stopped  it. 

From  this  it  would  appear  that  the  proposal  to  merge 
all  the  larger  steel  and  iron  companies  of  the  South 
never  developed  beyond  the  nebulous  stage.  However, 
a  consolidation  of  the  two  largest  of  these  concerns,  the 
Tennessee  and  the  Republic  companies,  had  been  defi- 
nitely decided  on.  The  two  concerns  were  controlled 
by  the  same  financial  interests  and  their  managements 
were  practically  identical.  While  it  is  not  unlikely 
that  some  of  the  directors  of  the  companies,  among 
whom  were  John  Werne,  or  "Bet  You  a  Million"  Gates, 
looked  upon  their  investment  therein  first  and  foremost 
as  a  speculation  and  would,  in  consequence,  have  re- 
garded favorably  the  opportunity  to  sell  out  at  a  fair 
figure,  there  were  others  who  had  implicit  belief  in 
the  possibilities  for  the  expansion  of  the  steel  industry 
in  that  section  and  considered  that  they  had  in  their 
hands  the  opportunity  to  build  up  a  southern  steel  em- 
pire. The  amalgamation  of  the  two  companies,  nat- 
urally, would  have  been  the  first  step  to  this  end,  and, 
as  has  been  stated,  it  had  been  decided  on  and  its  con- 
summation was  being  delayed  only  until  what  seemed 
to  be  a  favorable  time  should  arrive.  But  their  dream 
of  empire  was  doomed  to  disappointment. 

Another  reason  advanced  for  the  Steel  Corporation's 
supposed  anxiety  to  get  its  clutches  on  the  Tennessee 
Coal,  Iron  &  Railroad  Co.  was  that  the  latter  concern 
owned  ore  mines  estimated  to  contain  some  three-quar- 
ters of  a  billion  tons  of  iron  ore,  besides  coal  resources 
placed  at  two  billion  tons,  as    well    as  limestone  and 


NEAR   \'IE\V   OF    is-TON    ELECTRIC    UNLOADER    ENTERING    HATCH 
OF  VESSEL 


ORE  CARRYING    STEAMER,   ELBERT   II.   GARY.     SHOWING   HULETT 
UNLOADING  MACHINE  AT  THE  STERN 


The  Tennessee  Purchase  71 

other  raw  materials  necessary  in  the  manufacture  of 
steel.  The  company  also  enjoyed  the  undoubted  ad- 
vantage of  having  both  its  coal  and  iron  in  the  ground 
within  a  twenty-five  mile  radius  of  its  ovens  and  fur- 
naces— it  was  "sitting  on  its  raw  material" — whereas 
the  steel  mills  in  the  North  were  great  distances  from 
their  raw  supplies — Pittsburgh,  for  instance,  depend- 
ing for  its  ore  on  the  vast  iron  ranges  of  Northern 
Minnesota, 

The  proximity  of  its  mines  is,  of  course,  a  material 
advantage  to  the  southern  company,  as  transportation 
charges  on  raw  material  play  a  very  important  part  in 
the  cost  of  steel  making.  It  is  perhaps  not  so  gener- 
ally known  that  this  advantage  is  to  a  large  extent 
counterbalanced  in  other  ways.  Were  it  not  for  the 
saving  thus  gained  it  is  questionable  whether  it  would 
be  possible  to  manufacture  steel  commercially  in  the 
South. 

In  the  Hill  lease  the  price  which  the  Steel  Corpora- 
tion was  to  pay  on  the  ore  taken  out  of  the  Great  North- 
ern holdings  in  the  Mesabi  region  was  based  on  an  iron 
content  of  59%.  Northern  ore  averages  well  over  50% 
metallic  content  and  that  yielding  much  under  50%  is 
not  considered  commercially  available,  although  some 
of  the  lower  grade  ore  is  treated  by  a  concentrating 
process  and  made  so.  Moreover,  much  of  the  ore  of 
the  Great  Lake  region  lies  in  immense  bodies  within  a 
few  feet  of  the  earth's  surface  and  is  mined  by  the  sim- 
ple process  of  removing  the  top  layer  of  soil — tech- 
nically known  as  stripping — and  then  putting  a  steam 
shovel  to  work. 

But  the  ore  beds  from  which  the  Tennessee  com- 
pany draws  its  raw  supplies  average  well  under  40% 
in  iron,  actually  from  36%  to  37%,  nor  does  it  lie  near 
the  surface,  and  the  process  of  making  it  into  iron  and 
steel  is  necessarily  more  tedious  and  more  costly  than 
is  the  case  with  the  richer  and  more  easily  reached 
northern  iron. 


72  The  United  States  Steel  Corporation 

In  the  first  place,  more  labor  is  required,  particularly 
in  winning  the  raw  materials,  as  the  coal  fields  are 
badly  disturbed  geologically,  making  the  expense  of 
mining  very  much  higher.  And  the  ore  is  nearly  all 
hard  ore,  requiring  to  be  drilled,  blasted  and  crushed. 
Further,  the  low  iron  content  requires  the  use  of  about 
one  and  three-quarter  times  as  much  ore  per  ton  of  pig 
iron,  and  the  poor  quality  of  the  Alabama  ore  neces- 
sitates the  use  of  about  half  as  much  again  of  coke  to 
make  a  ton  of  iron  as  compared  with  that  coming  from 
the   Lake  Superior  district. 

The  high  phosphorous  content  of  southern  pig  iron 
prevents  the  use  of  the  cheaper  Bessemer  process 
which  is  used  on  the  low  phosphorous  pig  iron  of  the 
northern  district,  and  the  fact  that  no  Bessemer  steel 
industry  exists  in  the  South  to  furnish  the  scrap  re- 
quired in  the  straight  open  hearth  process,  prevents  the 
economical  use  of  this  process  in  the  South,  a  disadvan- 
tage which  does  not  exist  in  the  North,  where  scrap 
is  available.  Hence  it  is  advisable  in  the  Birmingham 
district  to  use  a  combination  of  the  two  processes,  the 
iron  being  first  bessemerized,  then  worked  through  the 
open  hearth  furnace.  And  this  adds  greatly  to  the  cost 
of  converting  a  ton  of  pig  iron  into  steel. 

Another  difficult  problem  with  which  the  Tennessee 
company  had  to  contend  was  that  of  labor.  The  large 
majority  of  the  common  labor  supply  in  the  South  is 
made  up  of  negro  labor  and,  while  the  colored  man 
often  makes  a  satisfactory  worker  if  properly  "bossed," 
he  is  unreliable  and  too  often  has  as  his  motto  "never 
do  today  what  you  can  put  off  until  tomorrow."  Given 
assurance  of  enough  to  eat  for  a  day  or  two  and  a  dollar 
in  his  pocket,  he  is  likely  to  refuse  to  work  until  again 
urged  by  the  spur  of  necessity — childlike,  his  vision  of 
the  future  is  limited.  And  this  disposition  to  take  life 
from  day  to  day  is,  to  put  it  mildly,  trying  to  the  manu- 
facturer who  needs  a  full  force  to  get  out  tonnage. 

And  even  if  the  negro  is  reliable  he  is  seldom  fitted 


The  Tennessee  Purchase  73 

to  take  positions  of  responsibility,  so  that  workmen 
must  be  brought  from  the  North  to  undertake  the 
skilled  work  or  that  requiring  managerial  ability.  And 
as  the  opportunities  for  such  men  are  greater  in  the 
North,  the  keeping  of  an  efficient  organization  together 
means  a  constant  struggle  on  the  part  of  the  manu- 
facturer, becomes  an  ever  present  and  pressing  problem. 
The  expansion  of  the  steel  industry  in  the  South  is 
further  limited  by  the  fact  that  it  is  an  agricultural, 
not  an  industrial,  section.  A  steel  mill  does  not,  in  the 
main,  make  products  to  be  sold  direct  to  the  ultimate 
consumer.  Its  output  must  be  manufactured  by  other 
companies  into  machinery,  locomotives  and  a  thousand 
and  one  other  things.  Its  customers  are  other  indus- 
tries, and  there  are  comparatively  few  industries  in 
the  South.  Thus  it  would  seem  that  the  formation  of 
great  southern  steel  merger  or  the  expansion  of  the 
Tennessee  company  to  a  size  sufficiently  large  to  cause 
apprehension  to  the  "Steel  Trust"  was  a  very  remote 
contingency. 

It  might  not  be  out  of  place  here  to  point  to  the  sig- 
nificance of  the  fact  that  the  Republic  Iron  &  Steel  Co., 
which  owns  important  tracts  of  ore  and  co»l  lands  in 
the  South  just  as  conveniently  situated  to  its  furnaces 
as  are  the  Tennessee's  holdings,  has  not  made  marked 
use  of  the  supposed  advantages  which  it  obtained  from 
its  southern  properties.  The  company's  expansion 
since  1907,  under  John  A.  Topping's  able  management, 
has  been  great,  but  it  has  been  almost  entirely  in  the 
North. 

These  things,  the  conditions  that  surrounded  and  in- 
fluenced steel  making  in  Alabama,  were  well  known  in 
the  steel  trade.  Therefore  it  was  hardly  to  be  won- 
dered at  that  when  Ledyard,  through  Morgan,  sug- 
gested to  the  directors  of  the  Steel  Corporation  that 
the  controlling  interest  in  the  Tennessee  company 
should  be  purchased  by  its  bigger  and  richer  rival,  the 
proposal  was  not  enthusiastically  received.     The  deal. 


74  The  United  States  Steel  Corporation 

for  any  other  reason  than  the  saving  of  the  financial 
situation  was  opposed  by  both  Gary  and  Frick.  The 
latter,  in  particular,  seemed  to  think  that  almost  any 
other  course  was  to  be  preferred  to  an  absorption  of 
the  Tennessee  company,  and  it  was  he  who  suggested 
that  a  loan  of  $5,000,000  be  proffered  Moore  &  Schley 
to  save  them  from  bankruptcy.  But  the  members  of 
the  firm  rejected  this  offer. 

It  was  not  a  time  for  delays,  for  dickering.  The 
financial  situation  was  a  seething  volcano  which  might 
erupt  at  any  minute.  From  Friday,  Nov.  1,  when  Led- 
yard  first  presented  the  matter  to  the  banker,  meetings 
of  the  Steel  Corporation's  finance  committee  and  con- 
ferences between  Gary  and  Frick  and  representatives  of 
Moore  &  Schley  were  held  almost  continuously  until 
Sunday,  Nov.  3,  on  which  date  the  Steel  Corporation 
management  finally  yielded  to  the  insistence  of  the 
brokers  and  agreed  to  purchase  the  controlling  stock 
of  the  Tennessee  Coal,  Iron  and  Railroad  Company 
at  par,  or  $100  a  share,  about  twice  the  value  that  had 
been  set  on  the  stock  by  Gary  in  his  earlier  talks  with 
Ledyard. 

Followed  the  now  famous  visit  to  Washington.  The 
deal,  though  practically  completed  on  Sunday,  was  not 
formally  closed.  Gary  insisted  that  the  President  of 
the  United  States  should  be  consulted  and  that  his  atti- 
tude should  be  ascertained,  and  Frick  demanded  and 
received  an  assurance  from  Morgan  that  every  assist- 
ance possible  would  be  rendered  other  companies  which 
were  in  difficulties  before  the  purchase  should  be  con- 
summated. 

At  midnight  Sunday  a  special  train  left  Jersey  City 
bearing  the  two  Steel  Corporation  directors  and  they 
were  delivered  at  the  national  capital  shortly  after  day- 
break Monday.  Theodore  Roosevelt,  then  President, 
was  breakfasting  when  the  two  arrived  at  the  White 
House,  but  he  gave  them  immediate  audience  and  to 
him  the  steel  men  explained  the  situation  and  asked 


The  Tennessee  Purchase  75 

whether  the  Government  would  be  antagonistic  to  the 
absorbtion  of  the  Southern  company.  Gary,  who  was 
spokesman,  told  the  President  that  he  and  his  associ- 
ates realized  that  the  deal  might  be  used  as  a  handle  to 
attack  the  corporation  for  attempted  monopoly — pro- 
phetic words — that  they  were  only  considering  the  pur- 
chase because  of  the  strained  financial  situation  which 
it  would  tend  to  alleviate  and  finally  that  the  taking 
over  of  the  Tennessee  properties  would  still  leave  the 
big  company  with  less  than  a  60  per  cent,  control  of  the 
country's  steel  trade.  This  percentage,  Gary  explained, 
was  the  limit  which  the  corporation  had  set  for  itself 
and  was  one,  incidentally,  from  which  it  was  gradually 
receding,  its  percentage  of  the  steel  production  of  the 
United  States  having  shown  an  almost  uninterrupted 
decrease  from  year  to  year. 

With  President  Roosevelt  at  the  interview  were  his 
private  Secretary,  William  Loeb,  afterwards  Collec- 
tor of  Customs  of  New  York,  and  Elihu  Root,  Secre- 
tary of  State.  Then  President  consulted  with  the  head 
of  the  State  Department  and  decided  that  it  was  not 
in  his  province  to  give  formal  approval  to  such  a  trans- 
action. He  nevertheless  gave  satisfactory  assurance  to 
Gary  and  Frick  that  the  Federal  Government  would  put 
no  obstacle  in  the  way  of  the  completion  of  the  trans- 
action. These  views  Mr.  Roosevelt  later  repeated  in  a 
letter  to  Attorney  General  Bonaparte, 

No  sooner  was  Gary  satisfied  as  to  the  President's 
attitude  than  he  informed  Morgan  by  long  distance — 
a  'phone  having  been  kept  open  in  readiness — of  the 
course  of  the  interview,  and  the  banker  announced  to 
the  financial  interests  of  New  York  that  the  Steel 
Corporation  had  arranged  to  purchase  control  of  the 
Tennessee  Coal,  Iron  &  Railroad  Co.  That  memora- 
ble morning,  Monday,  Nov.  4,  had  dawned  dark  and 
gloomy  for  the  financial  world  for  which  Wall  Street 
^,  is  the  nerve  center,  but  no  sooner  had  Morgan's  an- 

nouncement   become    known    than    a    marked    change 


76  The  United  States  Steel  Corporation 

towards  a  more  optimistic  sentiment,  a  genuine  im- 
provement in  the  situation,  become  apparent.  This 
the  banker  repeatedly  and  emphatically  declared  before 
his  death. 

Immediately  on  the  return  of  the  two  steel  directors 
to  New  York  the  purchase  was  completed,  Moore  & 
Schley  turning  over  to  the  corporation  157,700  shares  of 
common  stock  of  the  Tennessee  Coal,  Iron  &  Railroad 
Co.  and  receiving  therefor  $18,774,000  in  second  mort- 
gage bonds  of  the  corporation,  it  having  been  agreed 
that  the  stock  was  to  be  paid  for  at  par,  in  bonds  at 
a  market  value  of  84.  Other  common  stockholders  of 
the  Tennessee  company  were  ofifered  the  same  terms 
and  the  corporation  has  since  acquired  all  the  outstand- 
ing common  stock  of  the  southern  company  except  872 
shares.  The  $124,500  preferred  and  $178,600  guaran- 
teed preferred  stock  of  the  company  is  all  held  outside 
of  the  Steel  Corporation. 

George   G.   Crawford,   Manager  of   the  plants  of   the 
National     Tube     Co.     at     McKeesport,     was     appointed 
President  of  the  Tennessee  Coal,  Iron  &  Railroad  Co. 
under  the  new  management.    Crawford  accepted  some- 
what hesitatingly  at  first,  knowing  that  a  great  deal  of 
money  was  required  before  it  would  be  possible  to  put 
the  company  on  a  satisfactory  earning  basis.     Indeed, 
he  had  previously  refused  to  consider  an  offer  of  the 
position  of  manager  under  the  former  control.     Under 
his  guidance  the  company  did  rather  better  than  ex- 
pected and,  by  about  the  end  of  its  second  year  as  a 
"Steel  Trust"  subsidiary,  was  showing  a  small  profit. 
All  earnings,  however,  were  put  back  into  extensions 
and  betterments,  as  was  also  a  large  amount  of  cash 
supplied  by  the  controlling  corporation,  and  it  was  not 
until  the  year  1914  that  the  first  dividend  on  the  com- 
mon stock,  1  per  cent.,  was  declared.     But  the  value  of 
the  properties  and  their  earning  power  has  been  enorm- 
ously enhanced  and  this  will  show  its  effect  on  future 
profits. 


ELBERT   II.  GARY 


CHARLES  M.  SCHWAB 


T.  I'.  MORGAN 


GEORGE  W.  PERKIXS 


CHAPTER  V 
THE  MEN  OF  THE  CORPORATION. 

ELBERT  HENRY  GARY,  chief  executive  officer  of 
the  United  States  Steel  Corporation,  was  born  on 
a  farm  near  Wheaton,  Illinois,  on  October  8,  1846. 
He  was  a  descendant  of  old  New  England  stock  on  one 
side  and  of  French  on  the  other,  the  forebears  of  his 
father,  Erastus  Gary,  having  been  among  the  early 
Puritan  settlers  in  Massachusetts,  while  his  mother, 
Abiah  Vallette  Gary,  was  sprung  from  one  of  the  daring 
spirits  who  sailed  from  France  in  the  train  of  Lafayette 
and  fought  with  him  for  the  freedom  of  the  American 
colonies. 

The  future  head  of  the  Steel  Corporation  was  brought 
up  frugally.  Full  of  spirits  and  fond  of  play,  he  was 
more  or  less  repressed  by  his  Puritan  father,  who  was 
a  believer  in  the  discipline  of  hard  work.  His  days  were 
spent  at  school,  his  mornings  and  evenings  doing  chores 
around  the  farm  or  studying.  "My  father  didn't  be- 
lieve much  in  play,"  he  once  told  me.  But  though  Eras- 
tus Gary  may  have  been  stern  and  uncompromising  he 
was  at  the  same  time  a  fond  and  kindly  father.  When 
I  asked  his  son  what  had  been  the  dominating  influence 
in  his  life,  to  what  he  attributed  his  success,  he  replied 
with  deep  feeling:  "My  parents.  Whatever  worth  while 
I  may  have  done  I  owe  to  their  teaching  and  example." 

Among  the  friends  of  the  older  Gary  were  Col.  Henry 
F.  Vallette  and  Judge  Hiram  H.  Cody,  members  of  the 
Illinois  bar  and  the  firm  of  Vallette  &  Cody,  of  Naper- 
ville,  a  neighboring  town.  Both  were  often  at  the  Gary 
farm  and  were  impressed  with  the  signs  of  ability  El- 
bert displayed.     When  young  Gary  was  about  eighteen 


78  The  United  States  Steel  Corporation 

Vallette  asked  him:     "Elbert,  how  would  you  like  to 
become  a  lawyer?" 

Thus  was  Gary's  entrance  upon  the  legal  stage  ef- 
fected. He  entered  Vallette's  office,  and  in  1865  began 
to  read  law.  After  spending  a  year  and  a  half  in  the 
law  office  he  took  a  regular  course  in  a  law  school,  and 
was  soon  admitted  to  the  bar  of  his  State,  where  his 
success  was  rapid  and  pronounced.  Later  he  became 
Judge  of  Du  Page  County  and  was  admitted  to  the 
bar  of  the  Supreme  Court  of  the  United  States.  Mean- 
while he  had  formed,  with  his  brother  Noah  and  his 
former  chief  the  firm  of  Gary,  Cody  &  Gary.  His  suc- 
cess attracted  to  him  a  number  of  wealthy  clients,  among 
whom  were  many  large  corporations,  and  it  was  through 
his  connection  with  one  of  these  corporations  that  he 
eventually  connected  himself  exclusively  with  the  steel 
trade,  in  which  he  has  since  risen  to  be  the  most  com- 
manding figure. 

In  1898  Gary,  as  general  counsel  for  and  a  director  of 
the  Illinois  Steel  Co.,  was  called  on  to  take  charge  of 
the  organization  of  the  Federal  Steel  Co.,  a  merger  of 
the  Illinois  and  other  companies.  Here  Gary  was  for 
the  first  time  brought  into  close  touch  with  the  late 
J.  Pierpont  Morgan,  whose  financial  aid  in  the  forma- 
tion of  the  company  was  being  sought,  and  the  busi- 
ness ability  of  the  lawyer  so  impressed  the  banker  that 
he  and  others  interested  in  the  new  company  insisted 
that  Gary  should  be  its  president.  This  brought  Gary 
to  New  York  and  made  him  a  steel  man. 

Speaking  of  this  incident  an  old  friend  of  Judge  Gary's 
said:  "Legal  judgment  and  business  acumen  are  sel- 
dom found  in  combination.  Gary  had  both  these  quali- 
ties, and  in  a  higher  degree  than  in  any  other  naan  I 
have  ever  known." 

In  writing  of  the  great  majority  of  men  it  is  easy  to 
select  some  one  prominent  characteristic  which  particu- 
larly distinguishes  them.  But  there  are  some  who  owe 
their  eminence,  we  find,  to  a  variety  of  well  blended 


The  Men  of  the  Corforatkjn  79 

attributes,  and  Gary  is  one  of  these.  This  renders  it 
difficult  for  the  chronicler  to  decide  where  the  heaviest 
stress  should  be  laid. 

A  prominent  Chicago  lawyer,  one  who  in  his  youth  had 
worked  for  years  under  Judge  Gary,  was  appealed  to  in 
this  regard.    He  said : 

"Judge  Gary  had  the  ability  and  courage  to,  whenever 
necessary,  abandon  the  old  precedents  which,  by  reason  of 
•changed  times  and  conditions,  had  been  relegated  to  the 
scrap  heap  of  progress.  He  was  one  of  the  few  attorneys 
who  could,  with  almost  prophetic  vision,  see  the  positions 
which  the  courts  of  appeal  must  eventually  be  obliged  to 
take  with  reference  to  questions  of  public  policy  and  the 
great  industrial  organizations  just  then  in  their  infancy." 

This  lawyer  went  on  to  tell  an  anecdote  illustrating  that 
the  Judge,  although  a  member  of  the  legal  profession,  did 
not  believe  in  recourse  to  litigation  when  it  could  be 
avoided.    He  said: 

"I  recall  on  one  occasion  a  client  called  on  him  in  irate 
mood  and  asserted  his  intention  of  prosecuting  a  neighbor 
for  slander.  He  told  Gary  what  the  neighbor  had  said 
and  asked  his  opinion.  And  the  reply  he  received  was  Tf 
you  are  guilty  of  what  he  charges  perhaps  you  had  better 
sue;  but  if  you  are  not — why,  go  home  and  forget  it.'  " 

Perhaps  the  most  striking  characteristic  of  Judge 
Gary  is  his  "prophetic  vision,"  not  only  as  regards  "the 
positions  which  the  courts  must  take,"  but  of  the  trend 
of  human  events.  There  is  nothing  in  the  least  uncanny 
about  this  foresight,  this  "sixth  sense"  as  he  himself 
calls  it.  It  is  due  entirely  to  the  fact  that  its  possessor 
has  a  mind  peculiarly  capable  of  estimating,  sizing  up, 
the  relative  value  of  causes,  of  known  things  and  occur- 
rences, and  of  deducing  therefrom  the  natural,  the  inevi- 
table results. 

No  better  exemplification  of  this  can  be  given  than 
is  afforded  by  the  policies  which  he  advocated  for  the 
corporation,  and  which  were  gradually  adopted  and 
practiced.    He  saw  plainly  how  subject  to  criticism  was 


80  The  United  States  Steel  Corporation 

the  gigantic  organization  which  he  had  helped  to  form 
and  of  which  he  was  the  head ;  he  realized  that  its  very 
size  was  its  weakness,  as  attracting  enmity  and  making 
it  a  subject  for  attack.  And  in  the  face  of  powerful 
opposition  from  many  of  his  fellow  directors  at  first — - 
an  opposition  that  gradually  grew  less  and  eventually 
vanished,  or  was  converted  into  hearty  co-operation — 
he  insisted  that  the  corporation  should  so  deal  with  all 
with  whom  it  came  in  contact,  its  competitors,  its  cus- 
tomers, its  workmen,  as  to  make  all  these  its  friends. 
Such  a  consummation  was  regarded  as  an  impractica- 
ble dream  by  men  who  were  unable  to  divorce  them- 
selves from  the  old  ideas  of  doing  business,  who  could 
not  realize  that  a  new  industrial  era  had  dawned,  but 
Gary  persisted  and  won  out.  The  good  will  he  gained 
for  the  corporation  of  those  who  otherwise  would  have 
been  its  enemies  has  proved  a  strong  bulwark  of  de- 
fense, as  was  shown  during  the  trial  of  the  Federal  suit 
for  the  dissolution  of  the  "Steel  Trust."  It  is  difficult 
to  see  how  any  one  who  had  the  opportunity  to  listen 
to  the  evidence  presented  at  this  trial  could  have  failed 
to  be  impressed  with  the  fact  that  Gary  seemed  to 
have  seen  in  advance  every  point  of  attack  and  to  have 
taken  steps  to  minimize  or  eliminate  the  danger  there- 
from. 

Whatever  may  have  been  the  differences  of  opinion  at 
first,  for  many  years  the  policies  advocated  by  Gary  have 
been  endorsed  by  his  fellow  directors  on  the  board  of 
the  Steel  Corporation,  and  particularly  by  the  members 
of  the  Finance  Committee  who  have  stood  behind  him 
solidly  in  carrying  them  out.  Gary  himself  was  emphatic 
on  this  point  in  his  testimony  in  the  Government  suit. 

The  part  Gary  played  in  bringing  about  the  forma- 
tion of  the  U.  S.  Steel  Corporation  and  in  guiding  its 
policies  was  strongly  brought  out  by  Robert  Bacon 
in  his  testimony  in  the  Federal  suit  against  the  cor- 
poration.    Bacon,  speaking  of  the  organization,  said: 


The  Men  of  the  Corporation  81 

"Judge  Gary,  of  course,  directed  it  all."  And  later,  in 
discussing  the  policies  of  the  big  company : 

"The  facts  are  that  the  policy  of  the  company  from 
the  beginning  has  been  to  change  the  old  methods  of 
dealing  with  competitors.  Judge  Gary,  who  has  done 
more  for  the  U.  S.  Steel  Corporation  in  its  develop- 
ment and  the  benefits  it  has  brought  all  hands  than 
any  one  man  since  its  formation,  has  made  it  a  cardinal 
point  of  his  policy,  and  has  tried  his  best  to  inculcate 
it  upon  all  the  sub-companies,  that  there  was  a  new 
order  of  things  come,  that  there  were  new  rules  of 
the  game  dealing  with  competitors,  as  well  as  in  other 
human  relations.  Judge  Gary  has  talked  from  the 
very  first  and  has  tried  to  compel  the  actions  of  all 
the  others  in  the  corporation  towards  dealing  fairly 
and  decently  with  competitors,  as  being  the  only  way 
in  which  any  kind  of  stability  of  prices  or  of  condi- 
tions could  be  maintained.  He  has  from  the  beginning 
preached  and  practised  the  fairest  kind  of  dealing  with 
his  competitors,  keeping  them  informed,  as  far  as  he 
legitimately  could,  of  all  the  conditions  of  the  Steel 
Corporation,  and  by  doing  so  has  gradually  acquired 
z  degree  of  confidence  that,  in  my  opinion,  has  never 
existed  before  amongst  competitors.  The  old  conditions 
have  changed ;  the  old  destructive  and  ruinous  and 
ruthless  warfare  of  the  early  days  of  the  iron  and 
steel  industry  has  disappeared,  and  in  its  place,  by  rea- 
son of  the  attitude  of  Judge  Gary,  more  than  any  one 
else,  a  condition  has  been  produced  among  competitors 
in  the  iron  and  steel  business,  and  I  believe  in  many 
other  industries,   that   never  before   existed." 

Other  marked  attributes  of  Judge  Gary  are  his  in- 
tense desire  for  justice  to  all  and  his  sincere  in- 
terest in  the  well  being  of  the  worker.  He  is  not  a 
reformer  in  the  ordinarily  accepted  sense  of  the  term. 
He  does  not  prate  about  helping  the  workingman,  but 
in  guiding  the  big  corporation  he  has  always  seen  to 
it  that  the  man  who  labors  shall  be  given  a  chance  for 


82  The  United  States  Steel  Corporation 

clean  living  and  self  respect.  And  the  men  who  work 
for  the  corporation  recognize  and  appreciate  this  fully. 

Judge  Gary,  I  think,  sets  a  higher  value  on  this  rec- 
ognition and  appreciation  than  on  all  the  other  honors 
that  have  come  to  him.  I  remember  an  incident  told  me 
by  one  of  the  officers  of  the  corporation  in  this  regard. 

"Some  time  ago,"  he  said,  "two  men  from  the  mining 
regions  were  in  New  York  to  see  me  in  connection  with 
their  work  and  they  asked  whether  it  would  be  possi- 
ble to  meet  the  Judge,  whom  they  had  never  seen.  I 
took  them  to  his  office  and  Judge  Gary  received  them 
immediately,  rising  to  greet  them  with  outstretched 
hand.  And  one  of  the  two,  as  he  shook  hands  said: 
'Judge,  I  could  not  have  gone  back  to  my  fellow  work- 
ers without  being  able  to  tell  them  that  I  had  expressed 
to  you  in  behalf  of  all  of  us  the  loyalty  and  apprecia- 
tion we  feel  towards  you  personally,  our  knowledge  of 
the  interest  you  take  in  us.'  " 

And  here  is  what,  to  me,  is  a  remarkable  thing.  In 
the  vast  organization  that  is  the  Steel  Corporation  there 
are  thousands  upon  thousands  of  men  who  have  never 
seen  its  head,  who  have  no  idea  what  he  is  like  to  look 
at.  But  I  doubt  if  there  is  one  man  who  does  not  know 
and  feel  his  influence,  who  does  not  look  up  to  him 
with  respect  and  something  like  reverence.  His  person- 
ality has  permeated  this  huge  mass  of  men. 

Another  attribute  of  this  great  business  leader  is  a 
broad  and  real  tolerance  of  the  opinions  of  those  who 
do  not  agree  with  him.  Judge  Gary  has  built  up  a 
vast  organization  founded  on  what  he  conceives  to  be 
principles  of  justice  and  fair  dealing,  but  his  attitude 
towards  those  who  criticize  the  structure  he  has  erected 
is  not  one  of  impatience,  as  might  be  expected,  or  of 
irritation.  Rather  he  endeavors  sincerely  and  patiently 
to  disarm   criticism  by  a  policy  of  open  dealing. 

On  one  occasion  when  certain  acts  of  his  had  been 
criticized  as  constituting  a  possible  violation  of  the 
law,  he,   although   believing   utterly   that   he   had    not 


The  Men  of  the  Corporation  83 

offended,  forthwith  abandoned  the  continuance  of  these 
acts  so  as  to  leave  no  shadow  of  doubt  as  to  his  intent 
to  obey  the  law.  He  explained  at  the  time  that  though 
every  citizen  had  the  right  to  criticize  legislation,  and 
to  seek  to  have  changed  such  laws  as  he  deemed  unjust 
or  uneconomic,  he  was  bound  to  obey  these  laws  so 
long  as  they  remained  on  the  statute  books. 

It  is  perhaps  only  right  to  state  here  in  correction  of 
a  general  but  erroneous  impression  that  Judge  Gary 
never  speculates,  never  "plays  the  market."  The  aver- 
age man  is  inclined  to  believe  that  the  officials  of  large 
corporations  almost  invariably  make  use  of  special 
knowledge  that  comes  to  them  through  their  work  to  go 
"short"  or  "long"  on  margin.  No  doubt  this  is  true  of 
many,  although  not  nearly  to  so  great  an  extent  as  is 
supposed.     And  it  is  not  true  of  Judge  Gary. 

In  stature  Judge  Gary  is  of  medium  height.  He  car- 
ries his  years  well  and  appears  still  in  the  prime  of  his 
vigor.  The  impression  he  gives  the  observer  is  more 
that  of  a  diplomat  than  of  the  man  of  affairs,  an  im- 
pression that  is  heightened  by  his  slow  and  deliberate 
speech  and  his  appreciation  of  the  finer  meanings  of 
words.  Most  of  his  portraits  represent  him  sitting 
straight  up,  just  a  little  stiffly,  but  when  interested  in  a 
conversation  Judge  Gary  invariably  stands,  or  rather, 
paces  slowly  back  and  forth,  his  hands  sunk  deep  in  his 
trouser  pockets  and  his  head  bent  at  an  angle  of  deep 
thought.  And,  as  he  warms  to  his  subject,  he  now  and 
then  gesticulates  slightly  or,  turning  to  his  listener, 
drives  home  some  argument  with  pointed  forefinger. 
At  the  remembrance  of  some  amusing  incident  his 
beaming  eyes  light  up  the  rest  of  his  decidedly  serious 
face. 

Honors  have  been  showered  upon  Judge  Gary  by  uni- 
versities, rulers,  even  by  the  Pope,  the  late  Pius  X, 
having  presented  him  with  a  gold  medal  in  recognition 
of  his  efforts  for  the  bettering  of  working  conditions, 
but  I  think  he  values  above  all  else  the  esteem  of  the 


84  The  United  States  Steel  Corporation 

men  under  him  and  the  good  will  of  his  competitors.  In 
closing  this  brief  study  of  the  head  of  the  Steel  Cor- 
poration it  would  be  hard  to  find  a  more  suitable  end- 
ing than  in  repeating  the  quotation  used  regarding  him 
by  the  leading  steel  makers  of  the  United  States  and 
Canada  on  the  occasion  of  a  dinner  given  in  his  honor 
in  October,  1909.  These  were  men  who  had  fought 
with  him  and  against  him,  who  had  had  every  oppor- 
tunity to  estimate  his  value  and  who,  after  the  trying 
times  of  the  1907  panic,  declared  that  he  had  "played 
the  game  and  played  it  fair." 

"Moderate,  resolute,  whole  in  himself,  a  common  good." 


J,  P.  MORGAN. 

Without  J.  P.  Morgan  the  organization  of  the  United 
States  Steel  Corporation  would,  in  all  probability,  have 
been  impossible.  The  carrying  through  of  so  immense 
a  project  required  the  prestige  of  the  man  whom  the 
head  of  the  great  Deutsche  Bank  has  called  "the  great- 
est financier  the  world  has  ever  seen."  There  was  no 
other  banker  big  enough  or,  perhaps,  bold  enough,  to 
undertake  the  task,  and  this  is  why  no  history  of  the 
Steel  Corporation  would  be  complete  unless  it  con- 
tained a  brief  resume  of  the  life  of  Morgan,  brief, 
necessarily,  because  he  loomed  so  large  in  the  public 
eye  during  his  lifetime  and  so  much  has  been  said  and 
written  about  his  personality  that  it  would  probably 
be  impossible  to  say  anything  of  Morgan  with  which 
the  reader  is  not  already  familiar. 

John  Pierpont  Morgan,  son  of  Junius  Spencer  and 
Juliet  Morgan,  was  born  on  April  17,  1837,  and  received 
his  education  at  the  EngHsh  High  School  of  Boston 
and  at  the  University  of  Gottingen.  He  entered  the 
banking  business  with  the  firm  of  Duncan,  Sherman  & 
Co.  at  the  age  of  twenty,  and  later,  from  1864  to  1871, 
was  a  member  of  the  banking  house  of  Dabney,  Mor* 


The  Men  of  the  Corporation  85 

gan  &  Co.  Still  later  Mr.  Morgan  helped  to  form  the 
firm  of  Morgan,  Drexel  &  Co.,  which  afterwards  be- 
came J.  P.  Morgan  &  Co.  He  died  at  Rome  within  a 
few  weeks  of  the  close  of  his  76th  year,  on  March  31, 
1913. 

Morgan  had  a  peculiar  genius  for  financial  organiza- 
tion, and,  being  in  the  heyday  of  his  power  at  the  time 
when  vast  organizations  and  combinations  of  industry 
and  capital  were  the  order  of  the  day  it  was  natural 
that  he  should  have  figured  prominently  in  carrying 
through  the  largest  of  these.  The  financing  of  the  U.  S. 
Steel  Corporation  was,  without  doubt,  his  magnum 
opus.  Another  large  manufacturing  concern  with  the 
organization  of  which  he  was  closely  identified  was 
the  International  Harvester  Co.,  while  he  also  took  a 
prominent  part  in  the  reorganization  and  refinancing 
of  several  large  railroad  enterprises,  notably  the  Erie, 
Reading,  Santa  Fe,  Southern  and  Northern  Pacific.  He 
played  an  important  part  in  managing  the  affairs  of  the 
New  York,  New  Haven  &  Hartford ;  in  fact,  according 
to  the  former  president  of  the  line,  he  dictated  its  pol- 
icies and  actions. 

So  great  was  Morgan's  influence  in  the  managements 
of  most  of  the  companies  with  which  he  was  connected 
that  it  has  been  said  of  him,  as  of  the  McGregor,  that 
"where  he  sat  was  the  head  of  the  table." 

But,  so  far  as  the  Steel  Corporation  was  concerned 
at  least,  it  seems  to  have  been  fairly  well  established 
that,  keen  as  his  interest  was  in  the  big  company  and 
great  as  was  his  pride  in  it,  he  never  assumed  an  atti- 
tude in  the  least  dictatorial.  He  was  the  corporation's 
banker.  Questions  of  operation  and  of  policy  he  left 
entirely  to  those  having  direct  charge  of  them.  This 
was  particularly  true  in  the  last  five  or  six  years  of 
his  life,  by  which  time,  so  I  have  been  told  by  directors 
of  the  corporation,  the  banker  had  come  to  place  such 
implicit  reliance  on  the  judgment  of  Judge  Gary,  chief 
executive  officer  of  the  corporation,  that  he  always  ac- 


86  The  United  States  Steel  Corporation 

cepted  Gary's  ideas  as  the  best  thought  upon  all  matters 
connected  with  the  corporation. 

The  part  that  Morgan  took  in  bringing  about  the 
existence  of  the  Steel  Corporation  has  already  been  told 
in  these  pages.  There  is  good  reason  to  believe  that  he 
regarded  this  work  as  the  crowning  achievement  of  his 
career,  that  he  took  a  particular  pride  in  his  connec- 
tion with  the  corporation's  organization — and  who  shall 
say  his  was  not  a  worthy  pride?  He  lived  to  see  it 
firmly  established  and  exerting  an  influence  for  good  not 
on  the  steel  trade  alone  but  on  industry  as  a  whole ;  to 
see  it  gain  the  confidence  of  the  public,  as  evidenced 
by  its  growing  list  of  stockholders,  many  of  whom  hold 
only  a  share  or  two  and  regarded  these  almost  as 
bonds,  the  good  will  of  its  competitors  and  the  loyalty 
of  its  two  hundred  thousand  odd  employees.  But  un- 
fortunately, and  there  is  little  doubt  that  this  was  a 
matter  of  great  grief  to  the  banker,  he  also  lived  to 
see  it  attacked  by  the  law  department  of  the  govern- 
ment, entirely  without  justification  as  he  firmly  be- 
lieved. 

To  those  who  knew  him  only  by  sight  Morgan  ap- 
peared a  solitary  stern  figure,  perhaps  inclined  a  little 
too  much  towards  impressing  his  own  will  on  others. 
Those  who  enjoyed  his  friendship  declare  that  under 
his  stern  exterior  beat  a  heart  as  tender  as  a  woman's, 
that  he  took  the  keenest  interest  in  all  things  human 
and  that,  while  never  figuring  publicly  as  a  philanthro- 
pist, the  list  of  his  private  benefactions  was  enor- 
mous. When  he  died  the  leading  business  men  of  the 
country  all  united  in  testifying  to  his  ability  and  char- 
acter. Judge  Gary,  who  had  been  closely  associated 
with  him  for  several  years,  said : 

"As  a  constructive  force  in  financial  matters  he  had 
no  equal.  With  keenest  perception,  with  indomitable 
courage  and  with  unbounded  confidence  in  the  future 
he  was  a  natural  leader  and  as  such  he  was  called  upon 
in  time  of  financial  stress  to  lend  his  influence  to  avert 


The  Men  of  the  Corporation  87 

a  threatened  storm  or  to  overcome  an  existing  diffi- 
culty. And  he  never  failed.  His  character  was  such 
that  the  greatest  men  of  this  country  and  of  other  coun- 
tries, trusted  him  and  followed  his  lead." 

Shortly  before  he  last  sailed  from  his  home  shores 
Morgan  remarked  to  a  friend  that  his  work  was  done. 
The  words  were  prophetic.  And  posterity  is  beginning 
to  realize  how  great  was  this  work. 


CHARLES  M.  SCHWAB. 

Charles  M.  Schwab,  first  president  of  the  U.  S.  Steel 
Corporation  and  now  head  of  the  company  that  runs  the 
largest  armament  plant  in  the  world,  is  probably  the 
most  interesting  figure  in  the  realm  of  business  to-day. 
One  of  the  old  Carnegie  "Boys"  Schwab  is  in  many 
respects  like  the  former  Iron  Master,  particularly  in  his 
wonderful  ability  to  infuse  into  those  who  work  with 
him  some  of  the  enthusiasm  with  which  he  is  himself 
so  richly  endowed,  and  to  get  from  them  utter  loyalty 
and  devotion  and  the  best  of  their  ability.  To  this 
attribute,  as  much  as  to  anything  else,  Schwab  owes 
his  great  success. 

It  is  impossible  to  form  an  accurate  conception  of 
Schwab's  personality  without  coming  into  actual  con- 
tact with  the  man.  I  have  repeatedly  heard  it  said, 
often  by  competitors,  that  "C.  M.,"  as  he  is  known  to 
his  friends,  is  the  "best  salesman  that  ever  stepped  in 
shoe  leather."  And  this  is  not  an  exaggeration.  Earlier 
in  this  work  I  referred  to  Schwab's  tongue  of  gold. 
There  is  something  about  him — fascination,  personal 
magnetism,  call  it  what  you  will — that  captivates  al- 
most everyone  with  whom  he  comes  into  contact.  His 
infectious  laugh  disarms  hostility  and  criticism ;  his 
winning  manner,  backed  up  by  great  ability  and  genu- 
ine honesty  of  purpose,  compels  admiration  and  con- 
fidence. 


88  The  United  States  Steel  Corporation 

Countless  anecdotes  are  current  in  the  steel  trade  of 
Schwab  and  his  philosophy  of  good  nature.  I  suggested 
to  him  that  I  had  been  struck  by  this  and  he  said : 

"I  try  to  be  like  Schmidt.  He  was  a  foreman  under 
me  during  the  Homestead  strike,  and  one  day  he  came 
into  my  office  dripping  mud  and  water.  To  my  inquir- 
ies he  said  that  some  strikers  had  thrown  him  into  the 
creek. 

"  'What  did  you  do  then,  Schmidt,'  I  asked. 

"  'Oh,  I  shust  laff.'  " 

Here  is  another  Schwab  anecdote.  Several  years  ago, 
before  Bethlehem  Steel  had  earned  its  present  reputa- 
tion financially,  he  visited  a  well-known  New  York 
banker  to  seek  to  interest  him  in  a  proposed  bond  issue. 
He  told  the  banker  all  about  the  great  future  of  Bethle- 
hem Steel,  as  he  saw  it  and,  parenthetically,  as  it  has 
since  proved,  and  the  banker  was  enthusiastic  regarding 
the  issue.  The  Schwab  eloquence  had  carried  him  away. 

"We'll  underwrite  the  bonds,"  he  said.  "Go  back  to 
your  office  and  dictate  to  a  stenographer  what  you  have 
just  told  me  and  I'll  use  it  for  a  prospectus.  The  bonds 
will  sell  like  hot  cakes." 

So  the  steel  man  did.  But  the  banker  was  not  satis- 
fied, and  rang  him  up  on  the  'phone.  Schwab's  argu- 
ments were  not  nearly  so  convincing  in  cold  type  as 
when  given  in  his  inimitable  style,  and  the  banker  de- 
clared that  the  other  had  not  included  in  the  written 
statement  the  facts  given  in  the  conversation.  So 
Schwab  paid  him  another  visit  and  talked  the  matter 
all  over  again.    Then  the  banker  said : 

"Yes.  You've  got  it  all  down  here,  but  it  doesn't 
sound  the  same.  I  tell  you  what.  You  talk  the  bonds 
into  a  phonograph  and  we'll  use  the  records  to  sell  the 
securities." 

When  I  asked  Schwab  if  this  story  were  true  he 
laughingly  admitted  it,  and  then,  to  show  that  he  was 
not  averse  to  a  joke  on  himself,  related  another  con- 
cerning his  efforts  to  raise  money  for  Bethlehem  Steel 
in   its    earlv    davs.      He    said : 


The  Men  of  the  Corporation  89 

"I  went  to  see  a  Philadelphia  banker  whom  I  knew 
very  well,  and  told  him  I  needed  a  great  deal  of  money. 
He  said : 

"  'I  can  let  you  have  half  a  million.' 

"  Why,'  I  replied,  'I  can  get  more  than  that  from 
bankers  in  New  York  who  don't  even  know  me!' 

"  'That's  the  reason,'  he  gravely  returned." 

Charles  M.  Schwab  was  born  at  Williamsburg,  Pa., 
on  February  18,  1862.  He  was  educated  at  St.  Francis 
College,  Loretto,  Pennsylvania,  where  he  spent  his  boy- 
hood. His  entrance  into  the  steel  trade  was  the  result 
of  Andrew  Carnegie's  love  of  music.  Schwab's  father 
owned  a  Uvery  stable  at  Cresson  Springs  and  some- 
times Carnegie,  who  had  a  bungalow  there,  hired  horses 
from  him.  One  day  the  little  Scotchman  heard  a  boy's 
voice  singing  and  was  struck  with  the  youth's  gift  of 
music. 

"When  that  boy  of  yours  is  ready  to  look  for  a  job, 
you  bring  him  to  me,"  he  told  Schwab  senior.  And  so 
it  happened.  At  the  age  of  eighteen  Schwab  entered 
the  employment  of  the  Carnegie  company  as  a  junior 
in  the  drafting  room. 

Not  for  Schwab  alone  was  the  musical  incident  lucky. 
It  was  fortunate  for  Carnegie,  who  himself  declares  that 
Schwab  was  one  of  the  two  men  to  whom  he  owes  his 
success,  the  other  being  Captain  William  R.  Jones. 

Jones  was  superintendent  of  the  big  plant  at  Brad- 
dock  when  Schwab  entered  the  steel  trade,  and  the  lat- 
ter got  his  education  in  steel  making  from  Captain  Bill, 
as  Jones  was  called.  In  1880  a  steel  plant  was  built 
at  Homestead  by  a  new  competitor  of  the  Steel  King 
and,  getting  into  difficulties  on  account  of  labor  trouble, 
was  bought  out  by  Carnegie  a  few  years  later.  Schwab 
was  selected  for  the  job  of  superintendent  of  the  newly 
acquired  Homestead  plant,  a  signal  honor  for  a  man 
of  only  twenty-four. 

Schwab  went  to  Homestead  and  the  plant  soon  be- 
came the  most  paying  of  all  the  Carnegie  properties. 


90  The  United  States  Steel  Corporation 

When  he  arrived  there  the  organization  was  in  a  de- 
plorable condition.  The  long  series  of  strikes  that  had 
caused  the  original  owners  to  give  up  in  despair  had 
also  resulted  in  ill  feeling  on  the  part  of  the  workmen. 
But  Schwab  tackled  the  job  with  a  smile  and  in  a 
few  months  every  man  in  Homestead  swore  by  him. 
His  sympathetic  understanding,  his  personal  charm 
had  won  them  over. 

Given  a  free  hand  by  the  "big  boss"  Schwab  ex- 
panded the  plant  and  rapidly  increased  its  efficiency 
and  earning  power.  In  1889,  on  the  death  of  Jones, 
he  returned  to  Braddock  as  the  captain's  successor  and 
continued  there  until  the  breaking  out  of  the  great 
Homestead  strike  in  1892.  Had  Schwab  still  been 
in  command  at  Homestead  it  is  doubtful  if  the  strike 
would  have  occurred.  As  it  was  Carnegie,  as  soon  as 
he  heard  of  the  trouble,  cabled  that  Schwab  should  take 
the  helm  at  Homestead  to  steer  the  plant  through  the 
troubled  seas  and  he  remained  there  for  some  time  after 
the  strike.  Then  he  was  put  in  charge  of  both  the  Brad- 
dock  and  Homestead  plants,  the  only  time  that  one  man 
ever  managed  two  plants  for  Carnegie, 

Then  one  day  Carnegie  told  Schwab  that  it  had  been 
decided  to  make  him  vice-president  of  the  Carnegie 
company,  but  Schwab  replied: 

"No,  Mr.  Carnegie,  I  am  no  good  at  carrying  out  an- 
other man's  orders,  and  I  should  have  to  do  that  as 
vice-president.  As  superintendent  I  am  boss  of  the 
plants  I  manage.     I  prefer  to  remain  that  way," 

Next  day  Carnegie  again  sought  out  the  young  man : 
"Well,  if  you  won't  be  vice-president,  I  suppose  we'll 
have  to  make  you  president,"  he  said ;  and  so  he  did. 

Once  established  in  the  highest  position  in  the  steel 
world,  with  the  exception  of  the  particular  niche  occu- 
pied by  Carnegie,  Schwab  looked  around  for  new  worlds 
to  conquer.  He  was  satisfied  that  the  mechanical  end 
of  the  steel  trade  had  been  highly  developed  and  sys- 
tematized, department  by  department,  but  recognized 


The  Men  of  the  Corporation^  91 

that  the  next  step,  one  that  must  come  sooner  or  later, 
was  the  integration  of  the  different  departments  of 
steel  making  into  one  harmonious  whole.  His  ideas  for 
the  development  of  the  trade  were  along  much  the 
same  lines  as  Gary's,  and  we  have  seen  how  they  were 
carried  out.  In  1901,  on  the  organization  of  the  U.  S. 
Steel  Corporation,  Schwab  became  its  president,  with 
a  hundred  thousand  dollar  salary  and  about  fifteen 
millions  of  dollars  of  its  stock. 

But  Schwab  did  not  long  remain  president  of  the 
corporation.  He  had  too  long  been  accustomed  to  auto- 
cratic control,  to  being  absolute  boss,  and  he  found  a 
different  state  of  affairs  now.  Bred  in  the  old  steel 
school  he  was  out  of  sympathy  with  the  new  policies 
of  the  corporation  as  inaugurated  by  Gary  and  his  ad- 
herents. While  there  was  never  any  open  breach  he 
felt  restricted  and,  to  a  man  of  his  nature  there  was 
only  one  thing  to  do,  resign,  which  he  did.  Another 
reason  for  his  resignation  was  the  fact  that,  almost 
from  the  time  the  big  company  was  formed,  he  had 
been  in  poor  health.  So,  in  1903,  Schwab  sailed  for 
Europe  intent  on  a  long  holiday  and  resolved  to  give 
up  all  business  activities  permanently.  But  this  was 
not  to  be. 

Some  time  before  his  actual  resignation  from  the 
presidency  of  the  Steel  Corporation,  Schwab,  contem- 
plating resignation,  had  purchased  control  of  the  Beth- 
lehem Steel  Co.,  a  small  concern  located  at  a  town  of 
the  same  name  in  Pennsylvania,  his  intention  being  to 
develop  this  company.  But  he  was  persuaded  to  change 
his  mind  and  sold  out  his  Bethlehem  stock,  continuing 
for  some  time  after  with  the  Steel  Corporation.  Upon 
his  return  from  Europe  in  1904  he  was  asked  by  the 
organizers  of  a  new  shipbuilding  company  to  subscribe 
to  the  stock  of  this  concern  and  he  suggested  that  the 
proposition  would  be  much  stronger  if  it  controlled  a 
steel  company  to  ensure  an  economical  steel  supplv. 
Eventually  he  himself  for  the  second  time  bought  the 


92  The  United  States  Steel  Corporation 

entire  capital  issue  of  the  Bethlehem  company  and 
turned  it  over  to  the  shipbuilding  company  in  exchange 
for  bonds.  Schwab  did  not  take  any  part  in  the  man- 
agement of  the  company ;  he  was  merely  a  bondholder. 
Later  the  venture  failed  and  Schwab,  as  largest  bond- 
holder, found  himself  a  third  time  in  control  of  the 
Bethlehem  company.  Even  now,  still  determined  not 
to  return  to  an  active  business  life,  he  left  the  manage- 
ment of  the  company  in  the  hands  of  the  old  organiza- 
tion, and  it  was  not  until  about  1907  that  he  finally 
determined  to  assume  direct  charge  of  its  affairs.  He 
explains  his  resolution  by  saying  that  he  felt  that  the 
step  was  absolutely  necessary  to  conserve  his  invest- 
ment and  that  of  others,  but  it  is  not  unlikely  that  a 
cogent  reason  was  that  he  was  tired  of  an  inactive 
life   and   wanted   to  be   in  harness  again. 

When  the  shipbuilding  company  failed  it  was  claimed 
that  many  of  those  who  had  invested  in  the  securities 
of  the  company  had  done  so  because  they  thought  that 
Schwab  was  personally  the  power  behind  its  manage- 
ment, that  they  had  relied  on  his  reputation  and  ability 
for  a  return.  It  was  easy  for  Schwab  to  prove  that 
he  was  merely  a  bondholder  of  the  company,  but  this 
did  not  satisfy  him.  He  offered  to  pay  to  every  stock- 
holder who  had  invested  after  he,  Schwab,  had  become 
interested  in  the  company  as  a  bondholder,  every  cent 
he  had  lost  from  his  investment;  and  he  did.  "This 
cost  me  nearly  five  millions,"  he  said. 

When  Schwab  decided  to  go  back  into  the  battle  of 
steel  making  he  went  at  it  in  his  usual  enthusiastic  way. 
He  found  the  Bethlehem  Steel  Co.  in  a  run  down  con- 
dition and  he  poured  his  personal  wealth  and  all  the 
money  he  could  borrow  into  it.  In  about  eight  years 
he  has  spent  some  $50,000,000  in  extensions  and  im- 
provements and  the  success  of  his  work  can  be  meas- 
ured best  by  the  simple  statement  that  in  the  past  two 
years  the  company's  earnings  on  its  common  stock  have 
averaged  nearly  30  per  cent.     The  company  now  em- 


The  Men  of  the  Corporation  93 

ploys  17,000  workmen,  or  half  as  many  again  as  was 
the  population  of  Bethlehem  when  Schwab  assumed 
command  there ;  the  town's  population  has  grown  to 
60,000  now.  Schwab  brought  to  America  the  contracts 
for  the  first  battleships  to  be  built  in  this  country  for 
a  foreign  nation. 

Although  he  severed  his  connection  with  the  Steel 
Corporation  many  years  ago  Schwab  is  still  an  ardent 
believer  in  the  value  of  its  securities  and  in  its  future. 
"It  is  a  wonderful  concern,"  he  told  me.  "There  isn't 
anything  like  it  in  the  world,  nor  could  its  plants  and 
organization  be  duplicated  at  any  cost.  The  future  will 
show  how  well,  how  securely,  its  foundations  were 
laid." 


GEORGE  W.  PERKINS. 

George  Walbridge  Perkins,  chairman  of  the  Finance 
Committee  of  the  U.  S.  Steel  Corporation  from  shortly 
after  its  organization,  or  from  November,  1901,  to 
February,  1907,  and  still  an  active  member  of  that 
committee  and  of  its  board  of  directors,  was  born  in 
Chicago  in  January,  1862.  Like  many  other  men  who 
have  come  out  of  the  Middle  West  Perkins'  advance- 
ment was  the  result  of  push  and  not  of  pull.  He  began 
life  in  a  humble  capacity,  leaving  common  school  at 
the  age  of  fifteen  to  take  a  job  as  oi^ce  boy  at  the 
Chicago  ofifiice  of  the  New  York  Life  Insurance  Co. 

Later  he  became  a  bookkeeper,  then  solicitor,  then 
manager  of  agencies  and  still  later  vice-president; 
finally  he  was  elected  chairman  of  the  Finance  Com- 
mittee of  the  company  at  the  comparatively  youthful 
age  of  thirty-eight. 

As  manager  of  agencies  and  vice-president  he  had 
reorganized  the  company's  selling  methods  entirely, 
this  resulting  in  an  enormous  increase  in  business,  and 
had  inaugurated  new  and,  until  then  unheard  of,  poli- 


94  The  United  States  Steel  Corporation 

cies,  chief  of  which  was  publicity,  which  had  proved 
immensely  profitable.  These  were  the  days  when  the 
managers  of  big  business  enterprises  thought  that  the 
public  had  no  right  to  know  the  intimate  affairs  of  these 
companies.  Perkins  held  that  the  best  way  to  get  the 
confidence  of  the  public  was  to  give  it  your  own  and 
he  prevailed  upon  the  trustees  of  the  New  York  Life 
to  publish  annually  a  full  list  of  the  securities  in  which 
the  policyholders'  money  was  invested — an  innovation 
that  was  heralded  with  a  storm  of  ridicule  by  the  man- 
agements of  competing  companies.  But  these  same  re- 
ports proved  powerful  weapons  for  business  getting  in 
the  hands  of  the  agents  of  the  company  and  so  great 
was  the  increase  in  the  amount  of  insurance  written 
by  the  New  York  Life  following  their  publication  that 
the  practice  of  making  these  statements  soon  became 
general  in  the  life  insurance  world. 

During  the  later  part  of  last  century  the  life 
insurance  companies  of  the  United  States  bore 
a  far  from  enviable  reputation  abroad  and  many  coun- 
tries had  legislated  against  them.  Perkins  was  deter- 
mined that  the  New  York  Life  should  enjoy  the  priv- 
ilege of  doing  business  in  Europe,  and  he  journeyed 
to  Europe  three  successive  years,  returning  from  each 
trip  to  report  that  the  company  had  obtained  the  right 
to  do  business  in  a  new  field.  What  Perkins  said  to 
the  European  governments  was,  in  effect:  "The  New 
York  Life  is  ready  to  meet  any  fair  demand  for  safe- 
guarding the  interests  of  its  policyholders,"  and  then 
he  backed  up  that  assertion.  And  by  this  he  not  only 
extended  the  company's  field  of  operations  but  provided 
the  company's  agents  with  another  strong  selling  ar- 
gument. 

This  work,  and  the  fact  that  he  was  instrumental 
in  bringing  to  this  country  the  first  Russian  loan  ever 
placed  here,  brought  the  young  insurance  man  to  the 
notice  of  the  financial  world,  and  when,  early  in  1901, 
he  had  occasion  to  call  on  the  late  J.  Pierpont  Morgan 


The  Men  of  the  Corporation  95 

in  connection  with  the  great  Palisade  Park  project,  the 
banker  pointed  to  a  desk  near  his  own  and  asked: 
"How  would  you  like  to  sit  at  that  desk?" 
Perkins  refused  at  first  to  accept  the  offer  of  a  part- 
nership which  almost  any  man  would  have  considered 
a  high  honor.  And  it  was  some  time  after  before  Mor- 
gan persuaded  him  to  become  one  of  his  partners.  He 
was  admitted  to  the  firm  of  J.  P.  Morgan  &  Co.  in 
1901  and  continued  with  the  house  of  Morgan  until 
1911. 

When  the  Steel  Corporation  was  organized  Perkins 
was  elected  a  member  of  the  board  of  directors,  and 
shortly  afterwards,  on  the  resignation  of  Robert  Ba- 
con, became  chairman  of  the  Finance  Committee.  His 
experience  with  the  New  York  Life  had  peculiarly 
fitted  him  for  the  position  he  now  held,  for  Perkins 
was  first  and  last  an  organizer — a  worker  with  men, 
not  with  money.  Although  a  member  of  the  largest 
private  banking  house  of  the  country  he  was  not  a 
banker.  "In  the  ten  years  I  was  with  Morgan's  I  never 
went  behind  the  counter  or  examined  into  the  book- 
keeping end  of  the  business,"  he  told  me;  "my  job  was 
to  assist  in  the  physical  organization  of  the  great  indus- 
trial combines  which  Mr.  Morgan  was  then  engaged 
in  financing." 

Like  Gary,  head  of  the  Steel  Corporation,  Perkins 
looked  rather  to  the  ultimate  results  of  an  action  or  a 
policy  than  to  its  immediate  effects.  Like  Gary,  more- 
over, he  was  a  firm  believer  in  corporation  publicity 
and  in  the  square  deal  to  the  worker,  so  it  was  natural 
that  he  should  have  favored  these  ideas  in  the  corpora- 
tion. 

Perkins  was  particularly  identified  with  the  corpora- 
tion's bond  conversion  plan,  explained  in  an  earlier 
chapter.  It  was  his  idea.  When  the  subject  of  raising 
more  working  capital  came  up  after  the  organization 
of  the  big  company  it  was  he  who  suggested  a  scheme 
by  which  the  cost  of  securing  the  new  capital  needed 


96  The  United  States  Steel  Corporation 

would  be  paid  back  in  a  few  years  by  savings  in  inter- 
est charges,  one  which  would  also  eventually  reduce 
the  corporation's  fixed  charges  materially.  He  believed 
that  the  corporation  should  build  for  the  future  and 
that  it  was  a  matter  of  small  moment  if  the  immediate 
cost  of  a  course  of  action  were  high  if  the  ultimate  re- 
sults were  towards  economy.  And  when  the  plan  was 
opposed  in  the  courts  by  some  of  the  stockholders  it 
was  an  affidavit  presented  by  Perkins  that  did  more 
than  anything  else  to  induce  a  favorable  decision  and 
to  make  it  possible  to  proceed  with  the  conversion. 

In  1911  Perkins  retired  from  the  Morgan  firm,  at 
the  same  time  retiring  from  all  active  business  except 
his  directorship  in  various  companies,  chief  among 
which  were  the  Steel  Corporation  and  the  International 
Harvester  Co.,  of  which  latter  he  was  chairman  of  the 
Finance  Committee.  Since  that  time  he  has  devoted 
the  greater  part  of  his  energies  to  semi-public  work. 

He  has  been  especially  interested  in  the  problems 
growing  out  of  the  relationship  between  capital  and 
labor.  He  was  prominent  in  the  profit  sharing  plan 
that  is  now  in  vogue  in  the  Steel  Corporation  and 
which  has  been  so  largely  followed  by  many  other  in- 
dustrial concerns  in  the  last  ten  years.  He  has  also 
given  much  of  his  time  to  spreading  the  gospel  of  co- 
operation in  the  business  world.  As  long  ago  as  Feb- 
ruary, 1908,  he  began  making  public  addresses  on  the 
necessity  for  such  co-operation,  claiming  that  the  many 
modern  improvements  in  intercommunication  and  the 
enlightenment  of  the  people  through  our  broad  system 
of  education  have  brought  us  to  a  point  where  the 
old  destructive  competitive  methods  in  business  must 
be  abandoned  and  a  more  humane  and  enlightened  or- 
der of  things  take  their  place.  He  has  delivered  many 
addresses  throughout  the  country  on  these  two  favor- 
ite themes,  profit  sharing  and  co-operation. 

Perkins   is    not    a   philanthropist,   in   the   ordinarily 
accepted  use  of  the  word.     Presumably  he  gives  a  por- 


The  Men  of  the  Corpokatiun  97 

tion  of  his  large  income  to  charitable  societies  and 
works.  But  if  he  does  it  is  quietly.  But  to  work  for 
the  betterment  of  the  lot  of  the  laborer  or  the  welfare 
of  the  community  he  gives  himself,  his  time  and  his 
energy. 

It  is  not  unnatural  that  his  course  in  this  respect 
should  be  viewed  with  suspicion  by  many ;  that  his  mo- 
tives should  be  called  into  question.  For  the  specta- 
cle of  a  successful  business  man  breaking  off  apparently 
at  the  zenith  of  his  career  and  in  the  prime  of  his  life 
to  give  himself  to  pursuits  in  which  money  making 
had  no  part  is  unusual.  I  do  not  pretend  to  judge  his 
motives.      Let  him   speak   for  himself : 

''My  father,"  he  told  me,  "was  deeply  interested 
in  social  service  and  settlement  work,  and,  as  a  boy,  my 
Sundays  were  spent  not  in  merely  going  to  Sunday 
school,  but  in  rounding  up  the  poor  boys  of  the  neigh- 
borhood for  classes,  etc.  Later,  my  experience  selling 
life  insurance  brought  me  closely  in  touch  with  the 
needs  of  the  people  and  even  when  I  became  affiliated 
with  the  Morgan  firm  my  work  as  an  organizer  was 
the  human  end  of  the  job.  My  inheritance  from  my 
father  and  my  own  life  work  has  kept  me  in  touch 
with  'all  things  human.'  Isn't  it  only  natural  that  I 
should  take  a  deep  interest  in  what  you  might  call 
human  work? 

"I  don't  claim  credit  for  this.  In  fact,  I  don't  see 
how,  with  my  experience,  it  could  have  been  otherwise. 
It  became,  if  you  will,  my  hobby,  which  I  gratified  as 
soon  as  I  was  able  to. 

"When  a  man  approaches  fifty  years  of  age  and  finds 
he  has  enough  money  to  meet  his  wants  for  the  rest 
of  his  life  and  take  care  of  those  for  whom  he  should 
naturally  provide,  the  question  that  presents  itself  is: 
'What  am  I  going  to  do  with  the  remainder  of  my 
life?  Whatever  I  do  in  the  way  of  work  will  have 
to  be  left  behind  me  in  the  world.  Shall  I  work  to 
accumulate  more  money  and  leave  that,  or  shall  I  work 


98  The  United  States  Steel  Corporation 

for  certain  definite  objects  that  I  believe  are  worth 
while,  and  leave  the  results  of  that  work  when  I  die?' 
I  simply  chose  the  latter  course." 

The  reader  may  form  his  own  judgment.  Person- 
ally, I  believe  that  Perkins  is  entirely  sincere  in  his 
interest  in  the  work  he  has  undertaken. 


JAMES  A.  FARKKl.L 


CHAPTER  VI 
DEVELOPMENT  OF  THE  EXPORT  TRADE. 

IN  the  office  of  James  A.  Farrell,  president  of  the 
United  States  Steel  Corporation,  at  71  Broadway, 
New  York,  stands  a  pedestal  supporting  a  great 
globe.  It  is  a  fitting  place,  for  the  business  of  the  great 
steel  company  extends  to  practically  every  part  of  the 
known  world,  "from  China  to  Peru ;"  still  more  fitting 
because  Farrell's  name  is  indissolubly  connected  with 
the  development  and  extension  of  that  business  in  the 
markets  of  the  world. 

When  the  idea  of  a  big  steel  combine  was  first  con- 
ceived by  Judge  Gary,  one  of  the  chief  considerations 
in  his  mind  was  that  such  a  vast  organization,  and 
such  an  organization  alone,  would  have  immense  po- 
tentialities for  successful  world  competition  with  the 
manufacturers  of  the  other  great  steel  producing  na- 
tions— Great  Britain,  Germany  and  Belgium.  The  same 
thought  was  forcibly  brought  out  by  Chas.  M.  Schwab 
at  the  historic  Simmons  dinner,  and  it  was  one  of  the 
most  powerful  factors  in  influencing  J.  Pierpont  Mor- 
gan to  undertake  the  financing  of  the  giant  steel  mer- 
ger. In  the  following  pages  an  effort  will  be  made  to 
show  how  this  end  was  accomplished,  how  this  hoped 
for  world  trade  was  built  up  in  the  face  of  many  ob- 
stacles. 

Properly  speaking,  the  story  of  the  development  of 
the  corporation's  export  business  did  not  begin  until 
about  three  years  after  the  big  company  was  formed. 
Questions  of  internal  organization  were  naturally  para- 
mount in  the  early  part  of  the  Steel  Corporation's  ex- 
istence, and  these  first  three  years  were  taken  up  with 


100        The  United  States  Steel  Corporation 

problems  near  home — physical  organization,  co-ordi- 
nation, integration,  economy,  efficiency,  in  a  word  the 
welding  into  a  harmonious  whole  of  the  corporate  or- 
ganizations and  properties  merged.  Therefore  it  was 
not  until  the  early  part  of  1903,  when  internal  problems 
had  been  gotten  out  of  the  way,  that  the  question  of 
securing  export  business  on  a  more  systematic  and  prof- 
itable basis  was  actively  considered  and  steps  were 
taken  towards  the  formation  of  an  organization  with  a 
definite  export  poHcy.  To  do  this  it  was  necessary  to 
bring  together,  to  consolidate,  the  export  offices  and 
organizations  of  the  several  subsidiary  companies  which 
had  till  that  time  been  maintained  on  a  practically  inde- 
pendent basis.  This  was  done  by  creating  a  new  com- 
pany, the  United  States  Steel  Products  Export  Co.  (the 
"Export"  was  later  dropped  from  the  title),  late  in 
1903.  The  first  organized  efforts  of  the  corporation 
to  obtain  export  business  may  thus  be  said  to  have 
begun  with  the  calendar  year  1904. 

How  beneficial  was  this  co-ordination  of  the  ex- 
port trade  of  the  various  constituent  companies  under 
one  selling  agency  or  company  is  best  illustrated  by 
the  fact  that  the  cost  of  doing  export  business  has  been 
reduced  from  about  8  per  cent.,  which  it  was  when  each 
company  sold  independently,  to  slightly  under  1  per 
cent.,  the  average  of  recent  years.  As  the  corpora- 
tion's foreign  sales  have  exceeded  $90,000,000  in  one 
year  this  meant  an  annual  saving  of  over  $6,000,000  in 
the  year's  business,  or  about  enough  to  pay  a  quarterly 
dividend  on  the  preferred  stock.  The  lower  selling 
cost  also  meant  that  the  position  of  the  corporation 
in  bidding  against  foreign  competition  was  that  much 
improved,  and  to  it  must  be  attributed  largely  the  great 
increase  in  the  "Steel  Trust's"  export  business  of  recent 
years. 

The  choice  for  the  presidency  of  the  new  export  or- 
ganization fell  upon  James  A.  Farrell.  He  was  the  man 
fitted  pre-eminently  for  the  job,  and  his  selection  was 


Development  of  the  Export  Trade  101 

more  or  less  inevitable.  It  is  generally  recognized  that 
no  individual  in  the  steel  industry  possesses  so  wide  a 
knowledge  of  the  extent,  character  and  requirements  of 
the  foreign  export  trade  as  he  does;  no  individual  has 
done  more  to  further  that  trade  than  he.  In  1903,  when 
he  became  president  of  the  United  States  Steel  Prod- 
ucts Export  Co.  the  country's  foreign  trade  in  iron 
and  steel  had  dropped  to  a  little  over  300,000  tons ; 
in  1912  they  were  nearly  3,000,000  tons. 

For  many  years,  during  which  there  had  been  little 
disposition  on  the  part  of  the  American  steel  makers  to 
seriously  cultivate  markets  abroad,  Farrell's  entire  time 
and  energy  had  been  devoted  to  this  end.  Being  a  man 
with  that  genius  that  is  "an  infinite  capacity  for  taking 
pains,"  he  had  developed  a  thorough  knowledge  of  com- 
petitive conditions  affecting  steel  in  every  part  of  the 
earth's  surface  where  the  metal  was  sold.  He  had  be- 
come, what  he  still  is,  a  walking  encyclopedia  on  all 
matters  relating  to  the  exportation  of  steel,  carrying 
in  his  head  details  of  freight  rates,  steamship  facilities, 
duties  and  so  on  at  and  between  all  important  and 
many  unimportant  points.  His  facility  in  reeling  off 
these  facts  and  figures,  as  displayed  when  he  was  called 
as  a  witness  for  the  defense  in  the  Federal  suit,  now 
pending,  for  the  dissolution  of  the  Steel  Corporation, 
earned  him  the  soubriquet  of  "the  man  with  the  head 
full  of  figures,"  a  not  inept  title. 

And  indeed,  no  more  striking  exposition  of  the  wide 
scope  of  the  export  market  for  American  steel  which 
has  been  developed  within  the  past  decade  has  ever 
been  given  than  that  embraced  in  his  testimony  on  the 
occasion  mentioned.  His  statement,  which,  incidentally, 
consumed  nine  days,  was  a  remarkable  story  of  busi- 
ness achievement.  He  showed  that  the  exports  of 
the  Steel  Corporation  were  of  a  widely  miscellaneous 
character  and  equally  wide  distribution,  ranging  from 
cotton  ties  for  Egypt  to  highway  bridges  for  Iceland  ; 
from  wire  products  for  the  Holy  Land  to  light  rails  and 


102        The  United  States  Steel  Corporation 

pipe  for  the  diamond  mines  of  the  Transvaal ;  from 
galvanized  sheets  for  the  houses  of  the  Borneo  natives 
to  the  Steel  skeleton  work  for  the  large  and  beautiful 
buildings  of  Buenos  Ayres.  "From  Greenland's  icy- 
mountains  to  India's  coral  strand." 

Farrell  is  one  of  the  men  of  w^hich  the  steel  trade 
furnishes  so  many  and  so  striking  examples,  men  who 
have  worked  their  way  up  from  the  foot  of  the  ladder 
to  the  highest  places  in  the  industrial  and  commercial 
world.  Born  at  New  Haven,  Conn.,  on  February  15, 
1863,  he  started  his  career  as  a  laborer  in  a  wire  mill 
in  his  home  town  while  he  was  yet  in  his  teens — at  the 
age  of  fifteen  and  a  half.  But  it  was  not  long  before  he 
was  doing  skilled  work,  and  from  this  it  was  an  easy 
step  to  a  more  responsible  position. 

While  he  had  made  good  in  the  shops  Farrell's  abil- 
ity ran  rather  to  the  selling  than  to  the  manufacturing 
end  of  the  industry.  He  was  a  merchant,  a  salesman, 
above  all  things,  and  he  was  soon  given  an  oppor- 
tunity to  show  what  he  could  do  in  this  line  when  he 
was  sent  on  the  road  for  the  Pittsburgh  Wire  Co.,  with 
which  concern  he  had  become  connected.  Later,  when 
that  company  was  absorbed  by  the  American  Steel  & 
Wire  Co.,  Farrell  won  his  way  to  the  sales  manager- 
ship, with  such  pronounced  success  that  when  the  com- 
pany decided  to  enter  the  foreign  field  he  was  offered 
and  accepted  the  post  of  foreign  sales  agent.  When 
the  Steel  Corporation  later  took  over  the  American 
Steel  &  Wire  Co.  he  acted  in  the  same  capacity  for  the 
big  merger  and  finally,  upon  the  organization  of  the 
Steel  Products  Company,  he  was  made  president  of  that 
concern.  How  satisfactorily  he  filled  the  position  was 
shown  by  his  election  to  the  presidency  of  the  parent 
corporation  upon  the  resignation  of  William  Ellis  Corey. 
Farrell's  elevation  to  the  presidency  of  the  Steel  Cor- 
poration took  place  in  January,  1911. 

Although  no  longer  in  direct  charge  of  the  manage- 
ment of  the  Steel  Products  Co.  Farrell  still  takes  a  keen 


PLAZA  HOTEL  AT   HIENOS  AYRES,  FIRST  STEEL  SKELETON  BUILDING   I\  THAT  CITY 
MADE  OF  i,6oo  TONS  OF  UNITED  STATES  STEEL 


Development  of  the  Export  Trade  103 

personal  interest  in  all  that  concerns  the  structure  of 
foreign  business  which  he  helped  so  materially  to  erect. 
Quiet  and  unassuming,  he  yet  bears  a  name  for  thor- 
oughness and  efficiency.  He  throws  himself  whole- 
heartedly into  his  work,  giving  to  it  absolute  loyalty 
and  untiring  energy.  He  might,  indeed,  be  called  the 
man  who  never  rests.  His  usual  working  day  is  four- 
teen hours  long.  A  few  years  ago  he  took  a  well 
deserved  vacation  in  Europe,  but  brought  back  with 
him  a  big  sheaf  of  new  orders  which  he  ha(i  spent  his 
holiday  in  securing.  At  first  glance  Farrell  impresses 
one  as  "pure  business."  His  manner  suggests  impa- 
tience of  waste  of  time  or  language,  and  he  seldom 
makes  even  an  unnecessary  gesture.  His  appearance  is 
that  of  the  cold,  unsentimental  business  man,  but  his 
looks  do  him  an  injustice,  for  he  is,  if  one  is  fortunate 
enough  to  pierce  beneath  the  surface,  a  man  of  broad 
and  deep  sympathies  and  rare  delicacy  and  tact. 

Eugene  P.  Thomas,  who  had  assisted  Farrell  since 
1906  in  the  building  up  of  a  world  trade  for  the  corpora- 
tion, succeeded  him  as  head  of  the  Steel  Products  Com- 
pany in  1911.  Thomas  was  born  at  Atlanta,  Ga.,  May 
11,  1876,  and  after  a  brief  experience  in  the  newspaper 
field  entered  the  steel  trade,  starting  with  the  Lorain 
Steel  Co.   (then  the  Johnson  Co.)  in  1892. 

Thomas  was  another  of  the  pioneers  of  the  foreign 
trade  in  steel,  having  been  sent  to  England  in  1899.  Two 
years  later  he  became  Assistant  Foreign  Sales  Manager 
of  the  Lorain  Company,  and  on  the  formation  of  the 
U.  S.  Steel  Products  Export  Co.  he  headed  one  of  the  de- 
partments of  that  company.  Before  he  had  attained  his 
thirty-fifth  year  he  was  at  the  head  of  the  greatest  ex- 
port organization  of  the  United  States. 

Up  to  the  time  of  the  formation  of  the  United  States 
Steel  Corporation — indeed,  until  the  export  company  was 
formed — there  had  been  little  systematic  or  sustained  effort 
on  the  part  of  the  American  steel  manufacturers  to  cap- 
ture foreign  trade.    Such  campaigns  for  world  business  as 


104        The  United  States  Steel  Corporation 

had  been  undertaken  were  nearly  always  spasmodic  in 
their  nature  and  had  not  been  conducted  in  such  a 
manner  as  to  give  the  steel  maker  of  this  country  a  good 
name  abroad.  The  people  of  the  steel  consuming  coun- 
tries— as  distinct  from  those  producing  their  own  steel 
— preferred  to  deal  with  German,  British  or  Belgian 
mills,  and  the  reasons  for  this  were  obvious.  The 
great  steel  producing  countries  of  the  old  world  are  un- 
able to  consume  more  than  a  comparatively  small  pro- 
portion of  the  output  of  their  mills;  internal  or  home 
consumption  is  small.  Hence  the  exportation  of  the 
greater  part  of  the  steel  these  countries  make  is  a  press- 
ing necessity  and  every  effort  is  bent  on  securing^ 
foreign  outlets  for  their  product,  on  cultivating  world 
trade.  The  steel  maker  of  the  United  States,  on  the 
other  hand,  has  always  had,  except  in  times  of  severe 
depression,  an  excellent  market  at  home,  ready  to  hand, 
one  that  can  absorb  all  the  steel  he  turns  out.  The 
country  has  been  building  up  and  expanding.  Steel 
has  been  and  is  needed  for  railroads,  skyscrapers,  fac- 
tory buildings,  farm  implements,  automobiles,  and  a 
thousand  and  one  other  purposes.  The  result  of  this 
has  been  that  our  steel  manufacturers  have  had  no 
particular  desire  to  seek  foreign  business  in  normal 
times,  with  its  attendant  risks  and  expenses,  long  cred- 
its and  other  drawbacks.  They  were  at  one  time  con- 
tent to  leave  the  foreign  markets  to  European  exploi- 
tation and  only  to  enter  these  markets  when  dull  busi- 
ness at  home  forced  them  to  seek  some  new  outlet.  In  the 
earlier  days  of  the  industry  American  steel,  at  such  pe- 
riods, was  thrown  on  foreign  markets  at  prices  often 
below  productive  costs,  the  loss  being  considered  pref- 
erable to  the  disruption  of  the  company  organization 
which  a  continuous  decline  in  sales  would  have  brought 
about.  This  process  was  commonly  known  as  "dump- 
ing," and  it  was  calculated  to  earn  the  bitter  hostility  of 
foreign  competitors  who  saw  their  carefully  cultivated- 
markets  taken  away  from  them  by  cut-throat  competi- 


Development  of  the  Export  Trade  105 

tion.  A  wave  of  returning  prosperity  at  home  would 
again  cause  indifference  to  and  independence  of  foreign 
trade  on  the  part  of  our  steel  producers,  an  attitude 
that  naturally  did  not  work  to  create  good  will  among 
foreign  consumers.  One  of  the  results  of  this  state  of 
affairs  was  uneven  and  sporadic  exports;  another  was 
that  American  steel  had  no  friends  abroad. 

It  has  often  been  charged  against  our  manufacturers 
that,  although  professing  to  be  anxious  to  sell  their 
goods  in  all  markets,  they  are  unwilling  to  meet  the 
requirements  of  the  foreign  buyer,  taking  the  "if  they 
don't  like  our  goods  let  them  go  elsewhere"  attitude. 
This  gives  the  European  competitor,  who  goes  on  the 
principle  that  the  buyer  is  always  in  the  right,  an  in- 
calculable advantage.  The  basis  for  this  disposition  on 
the  part  of  American  manufacturers  lies  in  the  same 
factors  as  his  indifference  to  foreign  trade  generally, 
namely  the  vast  home  markets.  His  competitor  abroad, 
having  perforce  to  sell  half  or  more  of  his  output  in 
other  than  home  markets,  works  to  find  out  the  needs 
of  possible  buyers  everywhere,  and  then  sets  out  to 
meet  these  needs.    And  he  gets  the  business. 

But  the  Steel  Corporation,  having  taken  up  the  ex- 
port trade  as  a  permanent  part  of  its  business,  has  ac- 
cepted and  adopted  the  attitude  of  its  European  com- 
petitors that  the  consumer,  no  matter  where  he  is,  must 
get  his  goods  as  he  wants  them  and  not  as  the  manu- 
facturer sees  fit  to  give  them  to  him.  To  do  this  it 
has  become  necessary  to  manufacture  a  number  of  arti- 
cles, or  types  of  product,  for  which  there  is  no  call  at 
home,  to  adopt  the  weights  and  measures  of  each  coun- 
try in  dealings  with  that  country  and  in  other  ways 
to  make  it  convenient  for  the  purchaser  abroad  to 
order  his  requirements  from  the  corporation  in  the 
certainty  that  his  order  will  be  just  as  welcome  as  it 
would  be  to  a  British  or  German  mill,  and  that  it  will 
get  the  same  care  and  attention.    The  corporation  has 


106        The  United  States  Steel  Corporation 

even  found  it  necessary,  in  some  instances,  to  devote 
mills  to  making  nothing  but  export  products. 

Wire  goods  constitute  an  important  export  item,  and 
of  the  11,000  and  more  different  wire  products  made  by 
the  American  Steel  &  Wire  Co.  some  1,800  are  manu- 
factured for  foreign  trade,  many  of  these  lines  not  being 
sold  in  the  United  States  at  all.  For  the  countries  in 
South  America  lying  below  the  Equator  what  is  known 
as  varnished  wire  is  made ;  for  certain  other  tropical 
countries  wire  and  fencing  must  be  extra  heavily  coated 
with  spelter  to  withstand  rust;  and  so  forth. 

The  carpenter  in  Australia  will  not  use  the  ordinary 
round  wire  nail  so  commonly  employed  here.  He  de- 
mands a  nail  of  oval  section,  and  gets  it.  In  another 
part  of  the  world  a  square  nail  is  favored.  You  might 
argue  with  the  Australian  workman  till  Doomsday  that 
the  round  nail  is  "just  as  good"  as  the  oval,  but  he  is 
prejudiced  in  favor  of  the  oval  and  will  buy  the  nails 
he  wants  from  Europe  if  America  won't  supply  them. 
So  the  corporation  makes  oval  nails,  nails  to  suit  every 
taste  and  fancy.  It  does  not  attempt  to  argue  about 
tastes,  it  merely  accepts  them  as  they  are  and  endeavors 
to  satisfy  them — and  this  is  the  royal  road  to  sales  and 
profits. 

Nails,  in  the  United  States,  are  put  up  in  kegs  each 
containing  100  lbs.  For  the  Japanese  trade  picul  kegs, 
holding  133  lbs.  of  nails  are  demanded,  while  the  Hin- 
doo trader,  sitting  bare-legged  and  beturbanned  before 
his  booth  in  the  bazaars  of  Bombay  or  Calcutta,  offers 
the  passerby  small  packages  each  of  seven  pounds  of 
nails — put  up  by  the  American  Steel  &  Wire  Co. 

It  was  a  big  job  that  Farrell  had  handed  to  him 
when  he  was  put  in  charge  of  the  building  up  of  foreign 
markets  for  the  big  corporation.  For  not  only  did  the 
varying  conditions  affecting  sales  in  the  different  parts 
of  the  world  have  to  be  studied,  but  there  were  other 
obstacles  to  contend  with,  handicaps,  by  the  way,  which 
it  would  hardly  have  been  possible  to  overcome  with- 


Development  of  the  Export  Trade  107 

out  the  backing  of  the  power  and  prestige  of  the  great- 
est of  corporations. 

One  was  the  question  of  prices.  The  high  wages  paid 
to  American  labor  as  compared  with  labor  compensation 
in  Great  Britain,  Germany  or  Belgium,  combined  with 
the  fact  that  these  countries  lent  every  assistance  to 
their  manufacturers  in  increasing  the  world  business — 
particularly  Germany,  which  encouraged  the  artificial 
keeping  up  of  home  prices  and  the  reduction  of  export 
prices,  with  the  object  of  extending  the  nation's  for- 
eign commerce — rendered  it  impossible  for  American 
manufacturers  to  obtain  as  profitable  a  price  in  competi- 
tion with  Europe  as  they  did  in  the  domestic  field. 
Further,  as  the  corporation  entered  many  markets  to 
find  foreign  competitors  already  firmly  established 
therein,  it  was  necessary  to  offer  buyers  material  price 
concessions  to  get  business  at  all  in  the  first  place. 

Such  price  cuts  were  nearly  always  essential  to  give 
the  Steel  Products  company  its  first  foothold  in  the  de- 
sired markets,  to  force  the  entering  wedge.  The  fact 
that  the  corporation  has  sold  abroad  cheaper  than  at 
home  has  been  used  as  a  weapon  against  it  by  its  critics. 
Apart  from  the  fact  that  its  doing  so  afiForded  labor  to 
many  American  workers  and  thus  reduced  unemploy- 
ment, it  seems  plain  that  a  seller  must  make  his  price 
to  suit  the  market  in  which  he  is  operating,  that  had 
such  price  concessions  not  been  made  the  Steel  Cor- 
poration's export  business  would  never  have  shown  the 
remarkable  growth  it  has.  Europe  would  have  under- 
sold it  in  all  markets.  However,  the  corporation  re- 
fused to  follow  anything  like  the  old  dumping  policy, 
often  refusing  otherwise  very  desirable  business  on  the 
single  issue  of  price. 

Besides  the  preference,  natural  on  the  part  of  the  buy- 
ers, for  well-known  and  long-established  goods  and  the 
close  connection  of  foreign  manufacturers  antagonistic 
to  a  new  competitor  in  the  field,  the  corporation  had 
other  difficulties  to  overcome.    These  included  banking 


108        The  United  States  Steel  Corporation 

facilities  in  the  various  countries  opposed  to  business 
with  America;  cheaper  freights  and  better  steamer  ac- 
commodation from  foreign  ports  than  were  available 
from  the  United  States ;  preferential  duties,  and  so  on. 
For  years  the  big  company  has  persistently  contended 
against  these  obstacles,  gradually  working  up  to  its 
present  position  where  its  products  have  been  intro- 
duced and  their  quality  recognized  and  business  can 
be  secured  without  concessions  in  price  under  those 
of  older  competitors.  For  several  years  past  the  prices 
secured  on  foreign  sales  have  been  practically  the  same 
as  those  obtained  on  domestic  business,  more  in  some 
products,  less  in  others.  They  average  a  little  higher  at 
present.  In  1911,  for  instance,  the  average  price  at  the 
mill  on  rails  exported  was  $27.32,  compared  with  $28  in 
the  home  trade.  Rail  exports  for  the  year  were  valued 
at  $11,377,000.  The  concession  of  68c.  a  ton  seems  a 
small  one  to  pay  for  so  large  a  volume  of  business. 

The  Steel  Products  company  has  not  sought  merely 
to  increase  the  gross  tonnage  of  its  business.  In  the 
years  preceding  the  organization  of  the  Steel  Corpora- 
tion the  steel  exports  of  this  country  consisted  very 
largely  of  the  cruder  and  less  profitable  materials,  par- 
ticularly iron  ore,  pig  iron,  billets  and  steel  bars.  It 
will  readily  be  seen  that  the  most  important  business  is 
that  which  shows  the  greatest  profit,  that  in  finished 
rather  than  in  raw  or  semi-finished  material,  the  finished 
product  meaning  not  alone  larger  profits  to  the  shipper, 
but  more  employment  and  a  higher  rate  of  remuneration 
to  labor.  The  higher  degree  of  finish  to  the  products 
manufactured  the  greater  the  wages  paid  to  the  worker. 
In  exporting  iron  ore,  pig  iron,  scrap  and  cast  iron,  only 
the  cheapest  materials  are  involved,  the  lowest  paid 
labor  engaged.  It  is  a  question  whether  such  exports, 
particularly  those  of  iron  ore  and  pig  iron,  are  of  any 
real  benefit  to  the  country  as  they  involve  the  sacrifice 
of  natural  resources  usually  at  such  unremunerative 
prices  that  from  the  standpoint  of  conservation  it  might 


Development  of  the  Export  Trade  109 

appear  wiser,  to  economists,  to  withhold  these  reserves 
for  domestic  rather  than  foreign  consumption.  And  the 
policy  of  the  corporation  in  developing  its  world  trade 
has  been  in  harmony  with  this  thought;  its  efforts  have 
been  consistently  to  decrease  the  volume  of  its  foreign 
sales  of  the  less  worked  up  materials  and  to  increase 
sales  of  the  more  highly  finished  products. 

In  many  years  no  sales  of  pig  iron  at  all  were  made. 
In  1912,  the  record  export  period,  the  corporation  ship- 
ped abroad  2,223,570  tons  of  finished  steel  products  and 
only  46,503  tons  of  pig  iron,  ingots  and  scrap.  In  the 
following  year  the  comparison  was  1,756,328  tons  fin- 
ished to  56,104  tons  of  semi-finished  products.  In  the 
year  1904,  immediately  following  the  organization  of 
the  export  company,  foreign  shipments  were  1,001,716 
tons,  of  a  gross  value  of  $27,263,915,  an  average  of 
$27.22  per  ton,  f.o.b.  In  1912  the  tonnage  exported  was 
2,243,138,  of  an  average  value  of  $34.24  a  ton,  or  a  total 
value  of  $76,812,253.  In  the  period  indicated  there  had 
been  an  increase  of  123.8  per  cent,  in  tonnage,  an  in- 
crease of  181.7  per  cent,  in  total  value  and  a  gain  of 
25.8  per  cent,  in  the  average  price,  or  over  $7  a  ton. 
Incidentally,  the  average  price  received  on  the  big  com- 
pany's domestic  business  in  1904  was  $41.34  a  ton, 
against  $36.53  a  ton  in  1912,  or  a  decrease  of  11.6  per 
cent.,  or  nearly  $5  a  ton  for  the  period.  Part  of  this 
gain  in  export  prices  was  due  to  the  higher  classes  of 
goods  shipped  and  part  to  the  gradual  establishment  of 
the  corporation's  products  in  the  world  markets  and  in 
the  confidence  of  consumers  in  those  markets. 

How  important  has  been  the  part  played  by  the  U.  S. 
Steel  Corporation,  through  the  U.  S.  Steel  Products  Co., 
in  developing  the  iron  and  steel  exports  of  this  country 
is  shown  by  the  following  comparison.  The  tonnages 
given  for  the  United  States  include  only  iron  and  steel 
exports  proper,  and  not  machinery,  etc.,  not  manufac- 
tured by  the  corporation : 


110        The  United  States  Steel  Corporation 

U.  S.  Steel 

United  States.  Corporation. 

Year.                                                      Tons.  Tons. 

1904   1,167,710  1,123,322 

♦1905  1,010,255  1,052,259 

1906   1,325,740  1,258,370 

1907   1,301,979  1,099,934 

1908   964,242  857,860 

1909   1,243,584  1,120.443 

1910   1,535,689  1,423,070 

1911   2,183,662  1,918,387 

1912   2,941,684  2,537,436 

1913  2,737,571  1,813,072 

1914   2,097,549  1,103,483 

Between  1904  and  1912  the  corporation's  exports  in- 
creased 1,414,113  tons,  and  the  exports  of  the  country 
1,773,974  tons,  the  corporation's  increase  in  shipments 
accounting  for  approximately  80  per  cent,  of  the  total 
gain  shown  by  the  United  States. 

It  is  only  fair  to  point  out  that  the  exports  of  the 
United  States  for  1900,  the  year  before  the  corporation 
was  organized,  are  given  as  1,154,284  tons,  and  in  1901 
942,689  tons,  while  a  marked  decrease  was  reported  in 
1902  and  1903,  the  shipments  abroad  for  the  two  years 
being  respectively  372,399  and  326,590  tons  respectively. 
These  figures  include  a  vast  number  of  items  such 
as  the  subsidiaries  of  the  corporation  do  not  manufac- 
ture or  such  as  they  do  not  now  export.  Exact  reports  of 
the  companies  now  in  the  Steel  Corporation  in  1901  are 
not  available,  but  it  can  be  stated  that  the  iron  and  steel 
exports  for  the  year  of  such  products  as  they  make 
and  ship  abroad  were  only  291,000  tons.  In  1902  the 
corporation's  shipments  were  slightly  over  300,000  net 
tons. 

There  is  hardly  a  part  of  the  known  globe  where  the 
agents  and  products  of  the  Steel  Corporation  do  not 
penetrate.  In  some  countries  a  stafif  of  skilled  work- 
men is  maintained.  In  Buenos  Ayres,  for  instance,  the 
corporation  has  its  own  force  of  erectors  and  the  steel 
frames  of  nearly  if  not  all  the  handsome  and  modern 
buildings  of  the  Argentine  Capital  have  been  put  to- 
gether by  the  "Steel  Trust's"  riggers,  the  men  whom 

♦Apparent  discrepancy  probably  due  to  the  fact  that  shipments 
from  the  mill  in  December  did  not  leave  the  country  until 
January  of  1906. 


Development  of  the  Export  Trade  111 

Farrell  has  described  as  working  "with  one  hand  for 
their  hves  and  the  other  for  their  jobs." 

The  bulk  of  the  steel  used  in  the  construction  of  the 
Panama  Canal  was  supplied  by  the  Steel  Corporation, 
about  175,000  tons  in  all. 

Some  of  the  principal  points  of  export,  with  the  prod- 
ucts they  demand  chiefly,  are:  Iceland,  wire  products 
and  fabricated  steel ;  Java,  Sumatra  and  Borneo,  oil 
piping  and  galvanized  sheets;  Bombay,  angles,  sheets, 
wire  products;  Argentina,  fabricated  steel  and  a  gen- 
eral line. 

To  South  Africa  the  corporation  sends  pipe  and  light 
rails  for  the  diamond  mines;  to  the  countries  on  the 
Pacific  coast  of  South  America,  sheets  for  roofing,  wire 
and  railway  material ;  to  Patagonia,  railway  material ; 
to  Mexico,  practically  every  product  made ;  to  Canada, 
the  same;  to  Northern  Africa,  wire  and  sheets;  to 
Egypt,  wire  and  cotton  ties. 

China  is  a  great  market  for  defective  material.  The 
careful  celestial,  abhorrent  of  waste,  takes  wire  rods 
and  sheets  of  poor  quality,  even  old  horseshoes,  and 
makes  these  over  into  razors  and  a  number  of  other  arti- 
cles, many  of  which,  no  doubt,  are  sent  back  to  Amer- 
ica. 

To  Australia  are  shipped  rails  and  bridge  material, 
pipe  and  general  lines;  to  Austria,  wire  products  and 
pipe;  to  Syria  and  the  Holy  Land,  small  nails  for  fas- 
tening date  boxes,  wire  fence  and  pipe ;  to  Rangoon, 
pipe,  nails,  fence  and  sheets;  to  the  West  Indies,  a  gen- 
eral line;  to  Roumania,  pipe;  to  Central  America,  wire, 
galvanized  iron,  tin  plate,  light  rails,  pipe  and  bridge 
material ;  to  Formosa,  light  rails ;  to  Greece,  pipe,  wire 
sheets,  etc. 

In  German  South  West  Africa,  where  the  high  pro- 
tective tariff  in  favor  of  Germany  puts  it  at  an  immense 
disadvantage,  the  corporation  has  managed  to  find  a 
market  for  some  of  its  output.  This  country  is  a  great 
producer  of  palm  oil,  much  used  in  the  tin  plate  in- 


112        The  United  States  Steel  Corporation 

dustry,  and  the  corporation  does  a  trading  business 
here,  exchanging  steel  products  for  the  oil,  of  which 
it  uses  enormous  quantities. 

Altogether  the  Steel  Corporation  has  268  agencies  in 
over  60  different  countries.  These  countries  are :  Ar- 
gentina, Austria,  Australia,  Belgium,  Brazil,  British  In- 
dia, Grenada,  Bulgaria,  Canada,  Salvador,  Panama, 
British  Honduras,  Guatemala,  Honduras,  Costa  Rica, 
Chile,  China,  Colombia,  Cuba,  Cyprus,  Denmark,  Dutch 
East  Indies,  Dominican  Republic,  England,  Ecuador, 
Egypt,  Formosa,  France,  German  South  West  Africa, 
Greece,  Haiti,  Hawaiian  Islands,  Holland,  India,  Italy, 
Jamaica,  Japan,  Korea,  Mauritius,  Mexico,  Newfound- 
land, New  Zealand,  Nicaragua,  Norway,  Nova  Scotia, 
Peru,  Philippine  Islands,  Paraguay,  Porto  Rico,  Portu- 
gal, Roumania,  South  Africa,  South  Pacific  Islands, 
Spain,  Sweden,  Scotland,  Tasmania,  Turkey  in  Asia, 
Turkey  in  Europe,  Trinidad,  Uruguay  and  Venezuela. 

Although  the  Steel  Products  company  avails  itself  of 
the  facilities  for  shipping  offered  by  the  many  steam- 
ship lines  plying  between  American  and  foreign  ports, 
the  enormous  expansion  of  its  export  trade  has  forced 
it  to  maintain  a  fair  sized  ocean  going  fleet  of  its  own. 
The  corporation  owns  nine  vessels  and  usually  has 
from  35  to  40  ships  under  charter  carrying  its  products 
all  over  the  world.  These  vessels,  owned  or  chartered, 
touch  at  many  little  known  ports,  harbors  the  waters 
of  which  are  never  disturbed  by  the  prows  of  the  regu- 
lar liners,  and  at  these  places  they  put  off  loads  of  rails, 
tools  and  so  on,  instruments  with  which  the  pioneers  of 
civilization,  like  railway  builders,  are  extending  its 
march  into  untrodden  lands. 

All  the  ships  owned  by  the  corporation  fly  the  Stars 
and  Stripes,  having  been  transferred  to  American  regis- 
try immediately  upon  the  passage  of  the  Ship  Registry 
Bill  last  year.    These  vessels,  all  steamers,  are: 


Development  of  the  Export  Trade  113 

Tons,  Net 
Steamer.  Register. 

Buenaventura 3,064 

Bantu 2,661 

San  Francisco  3,164 

Craster   Hall    2,758 

Howick    Hall    3,094 

Santa  Rosalia   3,488 

Kentra     3,021 

Crofton  Hall  3,661 

Charlton  Hall   2,999 

Total    30,910 

The  shipping  of  steel  to  certain  points  lacking  a  regu- 
lar service  forces  the  employment  of  expedients  to  re- 
duce the  attendant  costs  in  many  cases.  To  give  one 
instance:  a  fleet  of  six  vessels  is  kept  working  espe- 
cially for  trade  with  the  East  and  West  coast  of  South 
America  and  Western  Canada.  These  vessels,  sailing 
from  the  Atlantic  seaboard,  make  calls  at  various  ports 
in  Argentina,  Chile,  Peru  and  up  to  British  Columbia, 
where  they  find  themselves  empty  and  without  oppor- 
tunity for  picking  up  a  cargo  for  the  return  trip.  To 
save  the  expense  of  bringing  them  back  in  ballast  car- 
goes are  taken  for  France  or,  maybe,  for  Wales,  and 
either  the  shorter  trip  across  the  Atlantic  is  made  under 
ballast  or  another  cargo  is  taken  on  for  a  home  port. 
The  total  trip  covers  some  35,000  to  40,000  miles  and 
takes  about  nine  months.  This  time  and  mileage  has 
been  materially  reduced  in  some  instances  through  the 
opening  of  the  Panama  Canal,  saving  the  long  journey 
through  Magellan  Straits. 

It  is  interesting  to  note  that  on  one  occasion  one  of 
these  vessels,  looking  for  a  return  cargo  at  Swansea,  re- 
ceived a  big  shipment  of  tin  plate  which  the  Welsh  mills 
had  sold  to  American  consumers  in  competition  with  the 
Steel  Corporation. 

The  shipping  of  steel  to  the  less  known  parts  of  the 
world  involves  difficulties  never  encountered  in  doing 
business  at  home.  The  export  men  have  become  accus- 
tomed to  fighting  these  handicaps  and,  unusual  as  they 


114        The  United  States  Steel  Corporation 

may  seem  to  one  accustomed  to  doing  business  with  the 
aid  of  the  efficient  methods  of  civihzation,  they  regard 
them  as  being  all  in  the  day's  work,  seldom  worthy  even 
of  mention. 

On  one  occasion  the  Steel  Products  Co.  shipped  a 
number  of  boilers  to  a  harbor  on  the  West  Coast  of 
South  America,  where  the  arrival  of  a  steamer  was  a 
rarity  and  facilities  for  landing  cargo  were  conspicuous 
by  their  absence.  In  the  absence  of  any  better  means 
of  getting  the  boilers  ashore  they  were  plugged  up  at 
both  ends  and  hoisted  overboard,  floating  on  the  waves 
to  the  sandy  beach.  This  novel  method  of  delivery 
caused  a  dearth  of  labor  in  the  vicinity,  as  the  natives, 
at  the  sight  of  the  huge  steel  cylinders  leaping  from 
the  waves  after  their  dive  and  rushing  ashore  on  the 
tide,  decided  that  they  were  strange  and  fearsome  mon- 
sters of  the  deep  and  made  for  the  woods,  where  they 
remained  for  several  days  before  they  could  be  induced 
to  return  and  carry  the  boilers  to  the  point  of  destina- 
tion. 

When,  some  two  years  ago,  the  Steel  Corporation 
supplied  the  rails  for  the  first  line  ever  built  to  Buena- 
ventura, Colombia,  a  similar  situation  in  regard  to  un- 
loading facilities  was  encountered.  So  each  rail  had  to 
be  sent  ashore  separately  on  the  little  native  dugout 
canoes,  and  it  was  only  the  skill  of  the  natives  in  hand- 
ling their  frail  barks  with  their  unwieldy  cargoes  that 
prevented  a  large  part  of  the  shipment  finding  a  rest- 
ing place  at  the  bottom  of  the  harbor. 

The  American  Bridge  Co.  has  erected  a  number  of 
bridges  in  the  Far  East.  In  China  the  steel  for  these 
bridges  is  hauled  or  rafted  up  the  rivers  in  the  dry  sea- 
son and,  if  the  rains  arrive  before  the  final  destination 
is  reached,  the  steel  is  left  on  the  river  bed  and  the 
journey  upstream  resumed  months  after  on  the  sub- 
sidence of  the  flood. 

Besides  the  large  fleet  owned  or  chartered  by  the 
Steel  Products  Company,  at  least  two  steamship  lines. 


Development  of  the  Export  Trade  115 

one  to  the  Far  East  and  the  other  to  the  Levant,  have 
been  started  by  independent  interests  as  a  result  of  the 
trade  v^hich  the  Steel  Corporation  has  built  up  in  these 
parts.  Yet  all  these  carry  only  a  comparatively  small 
amount  of  the  total  tonnage  shipped  abroad  by  the  big 
company.  Hov^  vital  to  American  commerce  is  the 
corporation's  development  of  foreign  business  is  shown 
by  the  fact  that  its  cargoes  constitute  an  important 
percentage  of  all  the  heavy  cargo  leaving  American 
ports.  More  than  half  this  "weight  cargo,"  it  is  claimed, 
is  shipped  by  the  Steel  Products  Co.,  the  Standard  Oil 
Co.,  and  the  International  Harvester  Co. 

The  benefit  of  large  exports  lies  largely  in  its  effects 
on  labor  in  the  exporting  country.  The  corporation's 
effort  has  been  to  find  a  regular  market  in  foreign  coun- 
tries for  20  per  cent,  of  its  output.  This  level  has  never 
actually  been  reached  in  normal  times  (on  account  of 
the  European  war  exports  are  running  about  33  per 
cent,  of  the  output  at  the  time  of  writing),  but  in  1912, 
the  record  year,  shipments  to  customers  abroad  were 
nearly  18  per  cent,  of  the  total  shipments  of  finished 
steel  made  by  the  corporation's  mills.  As  the  "Steel 
Trust"  gave  employment  to  an  average  of  221,000  men 
during  that  year  this  meant  that  some  39,000  workers 
were  being  employed  on  material  destined  for  export, 
or  that  18  per  cent,  of  the  corporation's  payroll  of 
$190,000,000,  or  $34,000,000,  was  being  paid  in  wages  to 
American  labor  by   foreign   consumers. 

In  the  final  analysis  this  figure  would  be  increased, 
as  the  corporation  encourages  and  assists  companies 
manufacturing  its  products  into  such  lines  as  machin- 
ery, cars,  etc.,  to  expand  their  export  business  by 
quoting  them  lower  prices  on  steel  to  be  exported  after 
manufacture.  This  re-export  business,  as  it  is  called, 
gives  work  to  perhaps  10  per  cent,  more  of  the  United 
States  Steel  Corporation's  total  employees. 

The  building  up  of  the  vast  export  sales  organization 
maintained  by  the  corporation  has  been  a   Herculean 


116        The  United  States  Steel  Corporation 

task,  but  if  the  volume  of  sales  and  the  steady  gain  in 
prices  is  any  indication,  the  work  has  been  well  worth 
while.  By  establishing  its  name  and  its  product  all 
over  the  world  the  corporation  has  not  only  added  to 
its  profits  and  to  its  markets,  but  by  providing  these 
markets  it  has  helped  to  relieve  the  pressure  of  over- 
production which  always  accompanies  times  of  depres- 
sion in  the  industry,  and  by  so  doing  has  conferred  a 
great  benefit  on  the  steel  trade  as  a  whole.  Every  ton 
of  steel  sent  abroad,  said  a  steel  man,  means  just  that 
much  relief  to  the  trade  at  home  in  dull  times. 


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BESSEMER   INGOTS 


CHAPTER  VII 
THE  SPIRIT  OF  THE  CORPORATION. 

SOME  months  ago  I  had  the  opportunity  to  visit  the 
mines  and  plants  of  the  various  companies  making 
up  the  great  Steel  Corporation.  I  had  expected  to 
be,  and  was,  impressed  by  the  various  processes  whereby 
iron  ore  is  converted  into  steel  rails,  wire,  nails,  tin- 
plate,  and  a  vast  number  of  other  products ;  by  the  mon- 
ster machines  used  for  loading  and  unloading  ore,  the  tall 
furnaces,  pools  of  molten  iron,  the  great  rolls  through 
Avhich  the  glowing  metal  is  passed  on  its  way  to  becoming 
a  finished  merchantable  article  and  the  thousand  and  one 
other  sights  of  the  steel-making  industry. 

But  after  two  weeks  spent  in  the  tour  the  one  impres- 
sion that  printed  itself  ineradicably  on  my  mind  above  all 
others  concerned  the  manner  in  which  the  vast  human 
machinery  that  is  the  corporation  was  handled,  the  or- 
ganization that  made  it  possible  for  an  army  of  a  quarter 
of  a  million  men  to  work  in  absolute  harmony  and  to  one 
end.     In  a  word,  the  spirit  of  the  corporation. 

The  entire  organization  is  permeated  w'th  "the  Steel 
Corporation  spirit."  From  Judge  Gary,  Chairman  and 
head  of  the  corporation,  and  James  A.  Farrell,  its  presi- 
dent, who  directs  the  manufacturing  and  commercial 
operations,  down  through  the  heads  of  the  various  con- 
stituent companies  and  so  further  through  the  other  offi- 
cials, through  those  whom  we  may  call  the  non-commis- 
sioned officers,  the  foremen  and  mine  captains,  and 
finally  among  the  men,  the  skilled  workers  and  common 
laborers,  there  is  to  be  found  that  one  universal  senti- 
ment of  loyalty,  of  personal  interest  in  the  fortunes  of 
the  big  company  and  the  will  on  the  part  of  each  man  to 
give  the  best  in  him  for  the  general  result. 


118        The  United  States  Steel  Corporation 

Naturally,  I  was  anxious  to  discover  the  why  of  this 
spirit,  how  it  was  possible  to  leaven  so  great  a  mass  of 
men  of  different  nationalities  and  degrees  of  intelligence 
with  it.  And  I  believe  I  have  found  the  answer.  And 
I  did  not  get  it  from  the  men  higher  up,  although  they 
all  tried  to  explain  and  furnish  reasons.  No,  I  got  it  from 
the  rank  and  file,  the  men  burrowing  in  the  mines  or 
handling  the  hot  steel, 

"Why  is  it,"  I  asked  them,  "that  you,  who  seem  to  be 
only  so  many  cogs  in  a  vast  machine  helping  to  turn  some 
one  particular  wheel,  appear  to  feel  yourselves  an  in- 
tegral part  of  that  machine?  Why  is  it  that  you  seem  to 
consider  the  corporation's  welfare  your  own,  its  difficulties 
your  difficulties?" 

And  the  answer  of  all,  though  variously  expressed,  can 
be  summed  up  in  the  reply  of  one  man,  who  said : 

"Because,  in  the  work  of  the  Steel  Corporation,  the  man 
who  gives  gets.  The  men  who  are  in  the  higher  posi- 
tions, who  are  drawing  big  salaries,  all  worked  their  own 
way  to  the  top.  Several  of  the  men  holding  important  jobs 
1  knew  when  they  held  little  ones,  and  in  every  case  I  was 
satisfied  that  the  advancement  they  got  they  deserved.  I 
don't  believe  there  is  a  single  official  of  the  corporation, 
or  any  of  its  subsidiary  companies,  who  got  his  job  through 
pull.  Hard  work  is  the  only  key  to  success  with  us,  and 
it  is  a  sure  one.  In  short,  I  feel  bound  to  give  the  corpora- 
tion a  square  deal  because  I  know  it  will  give  me  a  square 
deal." 

The  square  deal — that  is  the  secret  of  the  corporation 
spirit.  The  desire  for  justice,  for  recognition  of  full 
and  fair  service,  is  deep  grounded  in  every  man,  and  the 
Steel  Corporation  management,  by  giving  each  worker 
the  assurance  that  he  will  get  just  what  is  his  due,  has 
secured  for  itself  the  entire  co-operation  of  its  workers 
and  a  resultant  organization  that  probably  could  not  be 
equalled  elsewhere  in  the  industrial  world. 

No  position  in  the  corporation,  however  high  or  respon- 
sible, is  beyond  the  reach  of  any  employee  who  proves 


The  Spirit  of  the  Corporation  119 

himself  big  enough  for  it.  Farrell,  now  president,  started 
as  a  laborer  in  a  wire  mill.  The  late  Thomas  Lynch,  long 
head  of  the  H.  C.  Frick  Coke  Co.,  handled  a  pick  in  the 
coal  mines  of  that  company.  Schwab  and  Corey,  the  two 
former  presidents  of  the  corporation,  both  started  at  the 
bottom,  as  did  Alvah  C.  Dinkey*,  now  head  of  the  Carnegie 
Steel  Co.,  and  many  others.  Even  Gary,  although  he  did 
not  become  connected  with  the  steel  industry  until  middle 
life  and  after  he  had  made  his  success,  was  the  son  of 
a  farmer  and  got  to  the  top  by  hard  work  combined 
with  unusual  ability.  There  is  no  Open  Sesame  to 
honor  in  the  big  company — nor  for  that  matter,  in 
the  steel  trade  as  a  whole — the  keys  to  success  are 
ability  and  energy. 

Says  Alvah  C.  Dinkey:  "In  steel  making  harmonious 
team  work  is  essential  to  the  best  results  and  the  natural 
leader  therefore  rises  to  the  top  by  the  general  recognition 
of  his  fellows." 

Efficiency,  that  supreme  aid  to  increased  output  and 
large  profits,  has  become  a  fetish  in  industry  in  recent 
years.  In  its  final  analysis  "The  Spirit  of  the  United 
States  Steel  Corporation"  is  efficiency,  not  applied  merely 
to  the  mechanical  processes  of  manufacturing,  but  to  the 
human  element  behind  these  processes ;  the  efficiency  that 
abides  in  a  healthy,  well-housed  and  contented  workman, 

The  corp9ration  has  always  taken  a  close  interest  in 
matters  affecting  conditions  of  labor.  It  has  lent  its  in- 
fluence, its  money  and  the  time  of  its  officials  to  better 
these  conditions,  to  provide  better  homes  and  more  sani- 
tary and  healthy  conditions  for  its  men,  better  educational 
facilities  for  their  children  and  wholesome  amusement  for 
both.  For  itself,  the  big  company  expects  to  benefit  by 
reason  of  increased  efficiency;  for  the  worker  its  final 
aim  is  increased  self-respect. 

George  G.  Crawford,  president  of  the  Tennessee  Coal, 
Iron  &  Railroad  Co.,  says  on  this  point:  "Summed  up, 
the  end  of  all  social  betterment  work  is  the  inculcation 
of   self-respect.     The  worker  possessing  this   quality   is 


♦Mr.  Dinkey  resigned  in  October,  1915. 


120        The  United  States  Steel  Corporation 

worth  more  to  himself,  to  his  employer  and  to  society  than 
the  man  lacking  it.  Without  self-respect  he  remains  a 
common  drudge,  his  value  stationary  or  perhaps  receding. 
With  it  comes  ambition  and  energy,  and  the  employer 
who  does  not  set  a  high  value  on  these  qualities  is  short- 
sighted. The  lowest  kind  of  labor  is  always  to  be  had, 
but  the  men  with  ambition  and  the  will  to  make  good  that 
ambition,  the  men  of  real  value  to  themselves,  are  not 
so  easy  to  find — and  they  are  many  times  more  neces- 
sary." 

Mr.  Crawford  pointed  out  that  many  young  men  who 
would  be  marked  out  for  advancement  in  the  steel  industry, 
where  their  energy  and  ability  would  be  gladly  recognized, 
prefer  to  go  into  offices  or  stores  as  clerks  with  a  much 
smaller  opportunity  for  advancement,  rather  than  work 
in  a  steel  mill  or  mine,  because  the  conditions  natural 
in  the  work,  unless  mitigated  by  the  efforts  of  the  em- 
ployer, were  such  as  to  injure  their  self-respect.  By  sur- 
rounding living  conditions  in  the  industry  with  those 
things  that  make  for  clean,  decent  manhood,  such  men 
would  be  attracted  and  the  employing  corporation  would 
thereby  open  up  to  itself  new  fields  for  recruiting  the 
highest  type  of  men  for  its  organization. 

Cleanliness,  the  proverb  tells  us,  is  next  to  Godliness. 
Undoubtedly  it  is  the  foundation,  the  very  backbone  of 
self-respect.  The  man  who  is  clean,  who  is  surrounded 
with  cleanly  living  conditions,  holds  up  his  head  among 
his  fellows.  And  this  is  why,  to  my  mind,  the  efforts 
of  the  Steel  Corporation  to  introduce  sanitation  into  the 
steel  industry — the  first  principle  of  sanitation  being  clean- 
liness— constitute  the  greatest  step  taken  towards  improv- 
ing the  standard  of  living  of  the  industrial  worker. 

Let  us  take  one  single  sanitary  measure  and  see  its  ef- 
fects on  the  life  of  the  worker.  If  the  reader  has  ever 
been  in  the  coal  mining  regions  in  the  days  before  the 
light  of  sanitation  began  to  flood  industry,  or  indeed,  in 
some  districts  where  that  light  shines  not  at  all  or  very 
dimly  even  today,  he  has  seen  miners  returning  from  the 


The  Spirit  of  the  Corporation  121 

day's  work,  their  faces,  clothes  and  hands  black  with  the 
grime  of  burrowing  all  day  in  the  deep  coal  pits — the 
grime  usually  is  the  accumulation  of  many  days,  perhaps 
weeks,  of  such  work.  Is  it  hard  to  surmise  the  conditions 
in  the  home  of  these  men  ?  The  home,  unprovided  in  most 
instances  with  adequate  facilities  for  washing,  must 
sooner  or  later  take  on  the  aspect  of  its  head,  for  what 
woman  could  continue  a  struggle  to  keep  herself,  her 
house  or  her  children  clean  against  such  odds  ?  Untidiness, 
slovenliness  and  the  attendant  diseases  follow  as  a  mat- 
ter of  course.  The  family  standard  of  living  cannot 
progress,  rather  must  it  go  backward. 

Practically  every  mine  or  mill  operated  by  the  various 
subsidiary  companies  of  the  Steel  Corporation  has  as 
an  adjunct  a  large  washroom,  appropriately  known  as 
a  "comfort  room."  These  comfort  rooms  are  equipped 
with  long  rows  of  washbowls  and  a  number  of  shower 
baths,  as  well  as  a  locker  for  each  man.  The  worker, 
reporting  in  the  morning,  changes  to  his  working  clothes 
and  after  the  day's  labor  he  is  able  to  enjoy  a  nice  re- 
freshing shower,  and  changing  back  to  his  street  clothes, 
returns  home  leaving  behind  him  all  the  dust  and  dirt 
of  the  day.  There  can  be  no  comparison  between  the  con- 
ditions in  his  home  and  those  in  the  one  pictured  above. 

Any  official  of  the  corporation,  or  of  such  concerns  as 
have  followed  its  example  in  this  respect,  will  tell  you  that 
the  installation  of  these  helps  to  better  living  is  just 
plain,  practical  business.  That  the  gain  in  efficiency  pays 
many  times  for  the  cost  of  their  construction  and  main- 
tenance. 

Steel  mill  conditions  and  surroundings  are  not  naturally 
attractive — quite  the  contrary.  As  a  well-known  Pitts- 
burgh man  said  once,  a  steel  mill  is  far  from  being  a  draw- 
ing room.  But  the  corporation  has  set  itself  to  making 
these  surroundings  just  as  nearly  attractive  as  possible. 
It  is  now  the  rule  rather  than  the  exception  to  see  garden 
patches,  with  flowers  in  Summer,  here  and  there  through 
steel  plants.     And  these  are  not  purely  ornamental.     It 


123        The  United  States  Steel  Corporation 

has  been  proven  by  experience  that  the  workman  who 
can  rest  his  eyes  during  his  lunch  hour  on  even  a  tiny 
bit  of  "God's  green  earth"  instead  of  being  compelled  to 
contemplate  dirty  brick  walls  or  piles  of  rusty  scrap  iron, 
begins  the  second  half  of  his  day's  labor  less  fatigued. 
And  here  again  we  see  the  fetish  of  efficiency  lifting  up 
its  head. 

I  have  visited  boiler  rooms  and  other  work  places  in 
corporation  plants,  the  tiled  floors  of  which  are  kept  spot- 
lessly clean.  I  have  seen  the  machinery  hidden  from  sight 
just  as  much  as  proper  operation  would  possibly  permit 
and,  in  place  of  the  strewn  tools,  cotton  waste  and  other 
litter  usually  associated  with  such  places,  I  have  seen  hand- 
some oak  tables  arranged  in  orderly  disorder  here  and 
there  with  brass  gardiniers,  flowers  and  so  on  that  one 
would  ordinarily  expect  to  find  only  in  a  home.  Upon 
asking  the  reason  for  this  adornment,  I  was  informed  that 
it  meant  greater  comfort  to  the  worker  and  better  work 
to  the  employer.  It  was  further  explained  that  a  good 
deal  of  Sunday  or  night  work  was  often  necessary,  work, 
however,  which  gave  the  men  a  considerable  amount  of 
spare  time,  while  necessitating  their  presence  on  the  job, 
and  that  they  liked  to  have  their  friends  or  families  come 
and  keep  them  company.  The  company  found  that  by 
giving  the  worker  a  place  where  he  need  not  be  ashamed 
to  invite  his  wife  or  children  his  self-respect  was  in- 
creased and  his  value  to  the  company  added  to. 

Again,  a  practical  business  reason.  But  was  that  all? 
I  do  not  think  so.  For  I  came  to  find  out  that  the  men 
who  were  engaged  in  this  work  for  the  improvement  of 
conditions  usually  became  engrossed  in  it  for  its  own 
sake,  that  the  human  side  of  it  eventually  and  inevitably 
came  to  occupy  the  chief  place  in  their  minds,  although  I 
never  found  one  to  admit  this. 

In  a  previous  chapter  the  inauguration  and  operation 
of  the  Stock  Subscription  Plan,  designed  to  perfect  the 
physical  organization  of  the  corporation,  was  explained. 
As  a  result  of  this  plan  some  50,000  steel  workers  have 


POURING  INGOTS 


The  Spirit  of  the  Corporation  123 

become  stockholders  of  the  great  company,  or  more  than 
one-third  of  the  total  number  of  stockholders.  It  has 
been  suggested  by  some  who  see  nothing  but  menace  to 
the  worker  in  every  action  of  a  big  corporate  enterprise 
that  this  plan  had  for  its  real  object  the  subjugation  of  the 
worker  by  inducing  him  to  invest  part  of  his  wages  in  stock 
of  the  employing  company  and  then  demanding  unswerving 
obedience,  enslaving  him,  by  holding  over  his  head  the 
fear  of  the  loss  of  his  investment.  It  has  been  claimed 
that  the  plan  was  a  master  stroke  to  give  the  corporation 
the  whip  hand  in  the  event  of  a  strike.  It  is,  of  course, 
impossible  to  argue  motives,  but  the  plain  facts  are  that 
the  plan  has  not  worked  out  this  way. 

True,  the  big  company  has  had  very  little  trouble  with 
labor,  either  before  or  after  the  promulgation  of  the 
plan.  But  far  from  instilling  a  spirit  of  fear  into  the 
men,  it  is  noticeable  that  the  stockholding  employees  re- 
gard themselves,  and  rightly,  as  part  owners  in  the  vast 
enterprise,  the  organization  of  which  they  are  parts,  that 
they  feel  a  genuine  interest  in  its  welfare  and  work  whole- 
heartedly to  further  that  welfare.  They  take  a  pride  in 
the  corporation  that  is  very  real  and  apparent.  And  it  is 
not  strange  that  this  should  be  so.  If  the  corporation  had 
designed  to  make  its  workers  subservient  it  would  be  de- 
feating the  other  great  efficiency  end.  it  has  striven  for, 
because  self-respect  and  subservience  are  deadly  enemies 
and  cannot  exist  together. 

The  offering  of  stock  at  attractive  prices  to  employees 
is  just  another  efficiency  measure.  Each  worker  who  is 
a  part  owner  in  the  business  works  for  more  than  his 
wage.  "His  heart  is  in  his  work  and  the  heart  giveth 
grace  to  every  task."  Besides  the  plan  encourages  thrift 
and  it  is  a  recognized  fact  that  the  thrifty  worker  is  more 
reliable  than  his  spendthrift  brother,  and  more  efficient 
as  the  knowledge  that  he  has  something  put  by  for 
the  rainy  day  takes  a  burden  of  worry,  a  great  handicap 
to  efficiency,  off  his  shoulders.  Finally  this  knowledge 
helps  to  increase  a  man's  independence,  his  self-respect. 


124        The  United  States  Steel  Corporation 

If  I  seem  to  hark  back  continually  to  self-respect  it  is 
because  I  consider  this  quality  paramount,  its  influence 
affecting  not  only  the  worker  and  his  employer,  but  the 
whole  community.  If  I  were  asked  to  sum  up  in  a  few 
words  what  the  United  States  Steel  Corporation  has  done 
for  industry,  these  words  would  be  "It  has  exerted  an 
enormous  influence  in  helping  the  worker,  the  common 
laborer,  to  become  a  self-respecting  citizen." 

The  tangible  gain  to  the  corporation  has  been  enormous. 
The  intangible  gain,  although  not  reflected  in  profits,  has 
been  even  greater.  The  management  of  the  big  company 
realized  that  the  worker's  rights  to  a  decent  life  were 
just  as  important  as  the  rights  of  capital  and  that  more, 
both  in  mental  satisfaction  and  in  profits,  was  to  be  gained 
from  a  recognition  of  these  rights  than  their  denial.  Per- 
haps, too,  it  saw  that  sooner  or  later  the  day  would  dawn 
when  the  worker  with  his  hands  would  demand  fair  treat- 
ment, and  it  had  the  foresight  and  courage  to  hasten  the 
approach  of  that  day. 

In  the  matter  of  wages  the  corporation's  course  has  been 
in  entire  harmony  with  its  general  policy  towards  the 
worker.  Since  its  organization  in  1901  it  has  several 
times,  and  always  voluntarily,  increased  wage  rates,  and 
in  so  doing  has  set  a  lead  which  other  steel  companies 
have  found  themselves  forced  to  follow.  It  has  only 
once  reduced  wages,  and  then  not  until  the  dividend 
on  the  common  stock  had  been  passed.  Its  principle 
has  been  that  capital  and  labor  both  have  important 
rights  in  the  earnings  of  industry,  but  that  labor  is 
perhaps  more  directly  concerned  in  its  fortunes  and 
should  therefore  be  the  last  to  suffer  in  times  of  stress. 
Since  1901  the  average  wage  rate  of  the  steel  worker 
has  been  increased  approximately  27  per  cent.,  and  this 
gain  has  been  due  almost  entirely  to  the  corporation's 
Stand  on  this  question.  If  any  one  doubts  this,  let  him 
ask  the  competitors  of  the  big  company.  In  1911,  when 
steel  prices  were  at  an  unprofitable  level '  and  orders 
were  slack,  the  heads  of  more  than  one  independent 


The  Spirit  of  the  Corporation  125 

company  told  me  that  a  reduction  in  wages,  what  they 
called  the  liquidation  of  labor,  was  necessary,  even  im- 
perative, but  that  they  were  restrained  from  resorting 
to  it  while  the  Steel  Corporation  continued  to  pay  its 
men  the  old  rate.  They  said,  in  effect:  "The  United 
States  Steel  Corporation  boosted  wages  to  the  present 
high  level.  Let  it  take  the  lead  in  lowering  them."  But 
the  corporation  did  not.  Instead,  just  as  soon  as  there 
seemed  to  be  fair  promise  of  good  business,  it  gave 
wages  another  boost  of  about  7  per  cent.  Not  a  year 
ago,  in  the  face  of  the  worst  trade  depression  in  years, 
and  in  spite  of  the  fact  that  the  corporation  had  been 
compelled  to  forego  the  payment  of  the  dividend  on  its 
junior  stock  and  was  not  earning  its  preferred  divi- 
dend, its  management  refused  to  let  the  worker  suffer. 
So  strong  was  the  sentiment  throughout  the  trade  at 
that  time  in  favor  of  the  liquidation  of  labor  that  a  wage 
cut  was  looked  on  as  not  only  justified,  but  certain,  and 
it  is  generally  understood  that  it  was  only  the  insistence 
of  Judge  Gary  that  prevented  its  occurrence. 

Average  wages  paid  by  the  Steel  Corporation   to   its   employees 

during  the  past  thirteen  years  have  been  as   follows: 

1902 $716.88         1909   %77S77 

1903  720.08        1910  800.95 

1904  677.18         1911   819.85 

1905  710.78         1912 856.70 

1906 729.86        1913  909.50 

1907   765.18        1914 905.36 

1908  729.44 

Although  the  annual  wage  in  1914  was  some  four  dol- 
lars less  than  in  1913,  the  average  day  wage  to  the  work- 
ers, exclusive  of  the  administrative  and  selling  employees, 
was  $2.88,  compared  with  $2.85  the  previous  year.  This 
is  significant  as  indicating  the  policy  of  the  corporation 
to  equalize  as  much  as  possible  the  amounts  paid  to  the 
different  classes  of  workers.  In  instituting  advances  it 
has  always  been  the  lowest  classes  of  labor  that  have  been 
benefited  most.  The  result  of  this,  as  has  been  testified 
by  the  workers  themselves,  is  beter  team  work  with  re- 
.sultant  greater  efficiency  and  increased  satisfaction  on  the 


126        The  United  States  Steel  Corporation 

part  of  the  men  who  recognize  the  essential  justice  of 
the  policy. 

The  Steel  Corporation  has  been  subjected  to  repeated 
attacks  because  of  its  attitude  towards  labor  unions.  It 
neither  encourages  nor  approves  unionism  and  it  does  not 
contract  with  unions  as  such.  It  stands  for  the  open 
shop.  As  it  is  plain  that  the  biggest  of  all  employers 
has  not  sought  to  crush  the  worker,  that  it  has,  in  fact, 
done  much  to  make  his  lot  better  and  brighter,  the  ques- 
tion may  fairly  be  asked  why  it  is  opposed  to  dealing 
with  organized  labor. 

The  reason  is  not  far  to  seek.  Unionism  is  opposed 
to  efficiency.  It  destroys  the  esprit  de  corps  that  is  so 
important  in  getting  the  best  results  from  a  large  body 
of  men.  In  its  very  essence  it  is  antagonistic  to  the  em- 
ployer, it  sets  labor  and  capital  into  two  distinct  and 
inimical  camps.  It  would  make  war  between  capital  and 
labor,  and  the  management  of  the  corporation  believes 
that  the  only  workable  solution  of  the  whole  industrial 
problem  is  to  bring  labor  and  capital  into  friendly  co- 
operation, to  give  labor  a  part  in  the  ownership  of  in- 
dustry, making  the  interests  of  both  common.  This  is 
accomplished   in   part  by  the   Stock   Subscription   Plan. 

This,  of  course,  cannot  be  accomplished  in  a  hurry.  A 
movement  of  so  vast  a  magnitude  must  necessarily  take 
time.  But  it  is  safe  to  say  that  had  the  corporation's 
employees  been  organized,  the  betterment  of  the  condi- 
tions of  its  workers — and,  consequently,  of  the  steel 
workers  of  the  country — would  not  have  progressed 
nearly  so  rapidly  as  it  has. 

I  have  endeavored  to  outline  broadly  the  corporation 
spirit  of  efficiency,  it  being  impossible  in  the  limits  of  this 
chapter  to  give  details  of  the  many  methods  adopted,  both 
by  the  corporation  as  a  whole  or  by  the  various  subsidiary 
companies,  all  directed  to  this  one  end.  And  with  this  effi- 
ciency comes  loyalty  and  co-operation,  which,  I  am  con- 
vinced, makes  the  United    States    Steel  Corporation  the 


The  Spirit  of  the  Corporation  127 

most  wonderful  industrial  organization  the  world  has  ever 
seen. 

No  large  employer  of  labor  can  escape  from  the  charge 
of  injustice  to  its  men,  of  seeking  to  grind  down  labor, 
and  the  Steel  Corporation  has  not  been  immune  from  such 
attacks.  The  best  answer  to  that  charge  was  made  by 
one  of  the  workers  themselves.  At  the  annual  meeting  of 
the  corporation  in  April,  1913,  several  of  the  men  from 
the  mills  were  present  and  one,  E.  R.  Smith,  a  tin  plate 
roller,  declared  that  in  view  of  the  fact  that  the  mass  of 
the  corporation's  employees  had  time  and  again  given 
proof  of  their  satisfaction  with  the  relations  between  them 
and  the  corporation  and  of  their  loyalty  to  it,  the  charge 
that  these  men  were  oppressed,  a  charge  implying  the  most 
degrading  servility  on  their  part,  was  an  insult  to  the  dig- 
nity of  labor. 

I  have  tried  to  show  loyalty  and  co-operation  exists 
throughout  the  United  States  Steel  Corporation.  That 
it  is  the  result  of  the  endeavor  on  the  part  of  the  big 
company  to  give  to  the  men  who  make  up  its  organization 
absolute  justice,  the  square  deal,  its  effort  to  make  the 
worker,  even  the  poorest,  an  independent  self-respect- 
ing citizen,  and  to  give  every  man  in  its  mines,  mills, 
offices  and  so  on  an  opportunity  to  share  in  the  profits 
derived  from  his  efforts.  All  this  to  promote  efficiency, 
the  "Spirit  of  the  Corporation,"  to  increase  the  value 
of  the  worker  to  himself,  to  the  community  and  to  his 
employer.  Have  I  justified  my  statement  made  in  an 
earlier  chapter  that  the  organization  of  the  United 
States  Steel  Corporation  was  the  greatest  step  that 
has  ever  been  made  towards  the  highest  form  of 
socialism  ? 


CHAPTER  VIII 
THE  CORPORATION'S  IMPLEMENTS. 

FROM  the  days  when  steel  was  made  "by  the  spoon- 
ful" to  the  present  when  the  great  "Steel  Trust," 
with  its  33  Bessemer  converters  and  more  than 
300  open  hearth  furnaces,  is  capable  of  producing  some 
55,000  tons  every  twenty-four  hours,  is  a  far  cry  reck- 
oned in  terms  of  industrial  development,  although  the 
time  covered  is  less  than  three-quarters  of  a  century.  The 
pioneers  of  steel  could  hardly  have  dreamed  of  the  enor- 
mous proportions  which  the  industry  would  assume,  the 
innumerable  uses  to  which  the  metal  would  be  put. 

Fifty  short  years  ago  steel,  commercially,  was  still  in 
the  experimental  stage,  struggling  against  iron  for  its 
"place  in  the  sun."  At  that  time  the  head  of  a  great  rail- 
road system  dismissed  a  persistent  salesman  who  had  been 
trying  to  secure  his  order  for  steel  rails  with  the  exclama- 
tion:  "Steel  rails!  Bosh!  Stuff!  Nonsense!"  That  line 
has  thousands  of  miles  of  track  to-day  and,  of  course, 
they  are  all  steel.  Engineers  viewed  askance  the  plans 
of  the  first  designer  of  a  skyscraper  who  proposed  to  erect 
a  steel  bridge  up  into  the  air.  To-day  the  Woolworth 
Building  towers  750  feet  above  the  pavement  of  Broad- 
way. 

With  good  reason  has  the  present  era  been  called  the 
"Age  of  Steel."  What  field  has  steel  not  invaded,  in  what 
line  of  human  activity  does  it  not  play  a  prominent  part? 
Our  big  buildings,  our  navies,  both  of  war  and  commerce, 
our  trains  and  the  rails  that  carry  them,  machiner}%  tools 
of  every  trade — all  steel.  Furniture,  watch  springs,  even 
wire  hair  for  stuffing  mattresses — steel  again.  And  new 
uses  are  being  discovered  for  the  metal  almost  every  day. 
What  is  steel  ?    Iron  that  has  been  refined  and  hardened 


130        The  United  States  Steel  Corporation 

by  processes  in  which  heat  plays  the  most  important  part. 
Iron  ore  is  found  in  large  quantities  in  this  and  other  parts 
of  the  world.  Sometimes  it  is  loose  like  dirt,  and  again 
it  is  a  rocky  formation.  Its  color  also  varies,  some  ores 
being  red,  others  yellow  and  so  on  through  various  shades 
and  tints.  But  the  pure  metal  is  white  and,  strange  as  it 
may  seem,  quite  soft.  Cleansed  of  its  impurities  and 
hardened  by  a  mixture  of  carbon  and  other  ingredients,  it 
becomes  one  of  the  hardest  of  metals — steel. 

Iron,  apparently,  is  common  to  all  the  planets,  analysis 
having  proved  that  meteorites  often  contain  a  large  per- 
centage of  the  metal.  So  general  is  its  distribution  that  a 
theory  has  been  advanced  that  the  earth  is  nothing  but  a 
vast  mass  of  iron  thinly  encrusted  with  rock  and  dirt  and 
the  deposits  found  near  the  surface  are  merely  the  out- 
croppings  of  this  inexhaustible  mine. 

The  Western  Hemisphere  is  particularly  favored  in  re- 
gard to  its  deposits  of  iron.     Immense  ore  bodies  exist 
in  the  United  States  and  Canada,  as    well    as  in  Chile, 
Brazil  and  Cuba.    Of  the  ore  beds  in  this  country  the  most 
important  lie  around  Lake  Superior.     Near  this  great  in- 
land sea  there  are  no  less  than  six  different  so-called  ore 
ranges,    the    Mesaba,    Vermilion,     Marquette,     Gogebic, 
Menominee  and   Cuyuna.     Of  these  the  Mesaba  is   the 
largest,  richest  and  most  easily  worked,  and  from  it  is 
taken  a  material  proportion  of  all  the  ore  mined  in  the 
United  States.     There  are  ore  bodies  of  considerable  size 
being  worked  in  Alabama,   New  York,   Pennsylvania, 
Colorado,  Wyoming,  New  Mexico  and  Utah,  and  some 
American  iron  and  steel  makers  import  iron  ore  from 
Sweden,  Cuba,  Spain  and  Chile.     But  the  Steel  Cor- 
poration's subsidiaries  depend  upon  the  Lake  region  for 
their  raw  supplies,  with  the  exception  of  the  Tennessee 
Coal,  Iron  &  Railroad  Co.,  which  uses  Alabama  ores. 

First  of  the  Lake  ore  deposits  to  be  opened  was  the 
Marquette  Range.  In  1845  Philo  M.  Everett  was  guided 
by  Indians  to  "a  mountain  of  solid  iron"  to  which  he  gave 
the  name  of  the  missionary  explorer.    Shortly  afterwards 


The  Corporation's  Implements  131 

a  surveyor  named  Stunz  set  out  to  seek  gold  in  the  wild 
region  north  of  the  Lake  and  came  back  to  civilization 
with  the  tale  of  vast  iron  deposits  in  the  Vermilion  Range. 
But  it  was  not  until  the  early  seventies  that  capital,  in  the 
person  of  the  late  Charlemagne  Tower,  could  be  interested 
in  the  exploitation  of  the  deposits. 

The  discovery  of  Mesaba,  the  greatest  of  the  ranges, 
was  also  due  to  accident.  Some  years  before  the  Civil 
War,  Lewis  H.  Merritt,  a  prospector,  struck  out  into  the 
woods  in  quest  of  gold  and  came  back  empty-handed,  ex- 
cept for  a  few  samples  of  iron  ore.  Little  did  he  dream 
that  he  had  found  what  would  eventually  prove  far  more 
precious  than  gold.  He  told  of  his  discovery  only  to  his 
four  sons  and  it  was  not  until  1885  that  the  Merritt  broth- 
ers staked  out  their  first  mine  in  the  desolate  region.  The 
Merritts  were  lumbermen  and  their  claims  that  ore  ex- 
isted on  the  range  vv^as  scofifed  at  for  some  time,  the 
mining  fraternity  proving  to  its  own  satisfaction  that 
no  iron  could  be  obtained  from  the  Mesaba  mines.  In 
1913,  the  Steel  Corporation  alone  took  21,635,000  tons  of 
ore  from  this  range, a  single  mine  yielding3, 500,000  tons ! 

The  finding  of  iron  in  this  region,  incidentally,  proved 
a  great  boon  to  the  cause  of  education  in  Minnesota.  The 
story  has  been  told  but  is  worth  repeating.  It  is  the  tale 
of  a  joke  that  reacted  on  its  perpetrators,  and  has  its  be- 
ginnings before  the  Civil  War.  At  that  time  the  public 
school  system  of  Minnesota  was  badly  in  need  of  aid  and 
the  educators  clamored  long  and  loud  at  the  door  of  the 
legislature  for  a  share  in  the  public  lands,  eventually 
wringing  from  the  lawmakers  a  promise  of  ten  sections. 
This  promise  was  kept,  but  to  the  discomfiture  of  the 
educators,  and  the  amusement  of  ever}'one  else,  it  was 
found  that  the  sections  lay  beyond  the  pale  of  civilization, 
far  in  the  Northeastern  part  of  the  State.  But  the  joke 
reacted  when  the  development  of  the  Mesaba  Range  be- 
gan to  shovel  gold  to  the  credit  of  the  school  system. 
To-day  the  Minnesota  schools  have  millions  to  their  credit 


132        The  United  States  Steel  Corporation 

and  are  constantly  adding  to  the  amount  through  royalties 
on  shipments  of  ore  from  the  aforesaid  ten  sections. 

A  mine,  in  the  commonly  accepted  meaning  of  the  word, 
is  a  deep  pit  or  shaft  in  the  ground,  from  which  tunnels, 
or  drifts,  radiate  through  the  ore  bodies.  But  in  the 
Mesaba  region  nature  has  been  kind  to  the  steel  maker. 
She  has  saved  him  the  trouble  of  delving  under  the  earth's 
surface  to  get  at  her  riches.  The  majority  of  the  mines 
here  are  not  mines,  in  the  accepted  sense,  at  all.  They 
are  what  a  veteran  of  pick  and  shovel  methods  called 
them  when  he  first  saw  one  in  operation.  "Mine!"  he  ex- 
claimed ;  "why,  that  isn't  a  mine,  it's  an  ore  farm." 

Imagine  a  vast  amphitheatre  hollowed  out  of  the 
ground,  half  a  mile  wide  and  a  mile  and  a  half  long — 
these  are  the  dimensions  of  the  Hull-Rust  mine  at  Rib- 
bing— and  descending  in  a  series  of  deep  terraces  to  120 
feet  below  the  surface,  with  every  terrace,  save  the  first, 
dug  out  of  solid  iron  ore,  and  you  will  have  an  idea  of 
what  one  of  these  Mesaba  "ore  farms"  is.  One  end  of 
the  mine  is  graded  to  permit  the  entrance  of  trains,  and 
big  steam  shovels  burrow  into  the  soft  ore,  scooping  up 
a  ton  of  ore  at  each  lift  and  dumping  it  into  the  waiting 
cars. 

Under  these  conditions  mining  becomes  largely  a  mat- 
ter of  speeding  up  steam  shovels  and  of  transportation. 
At  the  beginning  of  the  century  no  mine  had  ever  shipped 
500,000  tons  of  ore  in  a  season;  in  1913  the  Hull-Rust 
averaged  that  each  month — a  ton  of  ore  every  two  sec- 
onds, allowing  for  a  ten-hour  working  day. 

Exclusive  of  the  mines  covered  by  the  Hill  lease,  now 
abandoned,  the  Steel  Corporation  has  developed  some 
seventy-five  mines  in  the  Mesaba  Range.  The  number 
worked  at  any  particular  time  depends  on  steel  trade  con- 
ditions. In  one  year  it  has  taken  from  these  mines  more 
than  21,630,000  tons  of  ore.  In  the  Vermilion  Range  it 
has  five  mines,  in  the  Menominee  seven,  in  the  Marquette 
twelve,  in  the  Gogebic  thirteen,  and  in  the  Baraboo 
Range,  in  southern    Wisconsin,    one.     Its    developed 


The  Corporation's  Implements  133 

mines  in  the  South  number  twenty-two,  of  which  four 
were  inactive  at  last  report.  The  total  yield  of  these 
mines  in  1913  was  28,738,451  tons. 

Perhaps  the  immensity  of  the  corporation's  mining 
operations  can  best  be  illustrated  by  the  statement  that 
the  excavation  involved  in  "stripping,"  or  removing  the 
surface  earth  overburden  from  the  open  pit  mines,  has 
aggregated  234,000,000  cubic  yards  of  earth,  or  more 
than  the  excavation  made  in  digging  the  Panama  Canal, 
in  the  Mesaba  Range  alone.  Total  excavation  in  this 
range,  including  mining  operations,  amounts  to  approxi- 
mately 410,000,000  cubic  yards. 

All  the  corporation's  mining  operations  in  the  North 
are  handled  through  one  subsidiary,  the  Oliver  Iron  Min- 
ing Company,  at  the  head  of  which  is  William  J.  Olcott. 

Some  of  the  western  Mesaba  ores  are  too  low  in  iron 
content  and  too  high  in  silica  to  be  immediately  available 
for  steel  making.  For  this  reason  a  concentrator,  or  ore 
washing  plant,  the  biggest  in  the  world,  has  been  erected 
at  Coleraine,  and  here  ore  as  low  as  Z7%  in  iron  is  treated 
by  water  and  gravity  and  brought  up  to  an  average  of 
about  56%  iron.  This  concentrator,  capable  of  handling 
about  3,000,000  tons  of  crude  ore  a  year,  is  operated  en- 
tirely by  electricity. 

Two  well  equipped  railroads,  both  Steel  Corporation 
owned,  carry  the  ore  from  the  mines  North  of  Lake  Su- 
perior to  tidewater  on  that  lake.  The  Duluth,  Missabe 
&  Northern,  at  the  head  of  which  is  William  A.  McGon- 
agle,  transports  the  Mesaba  ores  to  the  port  of  Duluth, 
while  the  Duluth  &  Iron  Range,  of  which  F.  E.  House  is 
president,  runs  between  points  in  the  Vermilion  Range 
and  the  eastern  part  of  the  Mesaba  Range  to  Two  Har- 
bors. The  mines  of  the  other  lake  ranges  are  served  by 
independent  roads,  the  ports  being  Marquette  and  Ash- 
land, on  Lake  Superior,  and  Escanaba,  on  Lake  Michigan. 

From  these  ports  the  ore  is  taken  on  the  vessels  of  the 
Pittsburg  Steamship  Company  to  Gary,  South  Chicago, 
Cleveland,  Ashtabula,  Conneaut,  Fairport  and  other  Lake 


134        The  United  States  Steel  Corporation 

Erie  points  for  distribution  to  the  furnaces.  The  Pitts- 
burg company  operates  seventy-two  steamers  and  a  num- 
ber of  other  vessels  on  the  Great  Lakes.  Many  of  these 
vessels  are  over  six  hundred  feet  long,  with  a  carrying 
capacity  of  12,000  tons  of  ore,  for  the  freightage  of  which 
they  are  specially  built. 

The  boats  are  loaded  with  their  cargoes  from  the  cor- 
poration's ore  docks,  the  largest  of  which  are  located  at 
Duluth.  The  newest  of  these  docks,  only  recently  com- 
pleted, has  a  total  length  of  a  mile  and  a  quarter,  half  a 
mile  of  which  juts  out  over  St.  Louis  Bay,  its  steel  and 
concrete  structure  towering  eighty  feet  above  water  level. 

Loading  is  done  by  rapid-fire  methods.  The  trains 
from  the  mines  dump  their  contents  into  huge  pockets  in 
the  docks — the  new  dock  has  some  four  hundred  pockets, 
each  holding  300  tons — and  from  these  the  ore  is  allowed 
to  slip  into  the  vessels  by  way  of  long  chutes  let  down 
into  their  holds.  No  labor  is  required  for  the  operation, 
the  whole  being  accomplished  by  the  natural  force  of 
gravity.  By  this  method  a  twelve  thousand  ton  ship 
has  been  filled  in  less  than  half  an  hour,  although  the 
average  time  is  a  good  deal  longer  than  this  record. 

At  the  other  end  of  their  trips  these  vessels  are  un- 
loaded, down  to  the  last  spadeful,  within  three  hours. 
Of  the  various  unloading  devices  employed  the  Hulett 
machines  are  the  most  modern  and  impressive.  Weigh- 
ing hundreds  of  tons,  these  huge  affairs  are  moved  up 
and  down  the  docks  by  the  touch  of  a  lever.  Almost  "a 
child  can  handle  them."  From  them  project  mighty  arms, 
which,  somehow  remind  one  of  gargantuan  grasshoppers- 
Seated  comfortably  in  the  wrist  of  one  of  these  great 
arms  is  the  operator  and,  at  his  will,  the  clam-shell 
bucket  hands  dip  down  into  the  bowels  of  the  vessel  and, 
opening  their  metal  fingers  wide,  to  a  span  of  twenty-two 
feet  in  the  largest  sizes,  close  with  irresistible  might 
on  everything  within  that  span. 

The  Hulett  machine  is  the  very  embodiment  of  power. 
The  incalculable  force  of  those  mighty  fingers  would  crush 


The  Corporation's  Implements  135 

a  railroad  car  like  a  sponge.  A  mistake  by  the  operator 
and  the  steel  ribs  of  the  unloading  steamer  would  be  torn 
away,  gnarled  and  twisted.  And  when  that  hand  comes 
up,  it  brings  a  load  worthy  of  its  strength,  full  fifteen 
tons  of  ore! 

Another  spectacular  time-saving  method  is  to  be  wit- 
nessed at  Conneaut,  where  coal  destined  for  the  ore 
mining  regions  is  loaded  into  returning  ore  boats  by  the 
carfull,  fifty  tons  at  a  clip.  Each  car  is  seized,  lifted 
and  swung  out  and  over  the  vessel,  and  its  entire  con- 
tents emptied  into  the  hold  in  a  matter  of  seconds. 

To  Pittsburg,  center  of  the  steel  industry,  comes  the 
bulk  of  the  ore  shipped  from  the  Great  Lakes.  Ore  des- 
tined for  Pittsburg  furnaces  is  brought  from  the  lake 
ports  by  the  Bessemer  &  Lake  Erie  Railroad,  another 
corporation  subsidiary,  with  its  200  miles  of  main  line, 
the  fourth  longest,  but  probably  the  best  known  of  the 
Steel  Corporation  lines.  The  Duluth,  Missabe  &  Northern 
holds  first  place  among  these  roads  in  respect  to  mileage, 
224  miles,  with  the  Elgin,  Joliet  &  Eastern  second,  210 
miles,  and  the  Duluth  &  Iron  Range  third,  204  miles. 
The  total  trackage  of  the  Steel  roads,  including  sidings, 
branches,  switches  and  yard  track,  is  3,380  miles,  all  main- 
tained in  excellent  condition  and  absolutely  modern. 

A  line  drawn  from  New  Orleans  to  St.  Louis,  thence 
to  Kewanee,  111.,  and  so  on  through  Minneapolis  north 
would  about  form  the  western  boundary  of  the  Steel  Cor- 
poration's manufacturing  and  mining  activities.  The 
northern  boundary  would  be  the  Canadian  border,  with 
the  Atlantic  and  Gulf  of  Mexico  bounding  the  east  and 
south.  Half  the  United  States!  The  extreme  north- 
west of  this  area  is  now  devoted  to  mining  alone,  but  a 
steel  plant  with  a  capacity  of  nearly  five  hundred  thousand 
tons  of  steel  ingots  will  be  in  operation  at  Duluth  before 
the  end  of  the  current  year*. 

All  over  the  remainder  of  this  vast  area  are  scattered  the 
plants  of  the  big  company,  but  nowhere  are  they  so  thickly 

♦This  plant  is  now  in  operation. 


136        The  United  States  Steel  Corporation 

clustered  as  around  Pittsburg,  the  steel  city  of  the  world. 
Here  the  biggest  of  the  subsidiary  companies,  the  Carnegie 
Steel  Company,  has  its  headquarters,  and  here  too  is  the 
home  of  the  National  Tube,  American  Sheet  &  Tin  Plate 
and  American  Bridge  companies.  All  the  Carnegie  plants 
are  in  or  near  Pittsburg,  as  are  the  principal  plants  of  the 
National  Tube  Company — this  company  has  an  important 
establishment  at  Kewanee — but  the  Tin  Plate  and  Bridge 
companies  have  their  plants  very  widely  scattered.  The 
Chicago  territory  provides  a  home  and  a  market  for  the 
Illinois  Steel  Company  and  the  Indiana  Steel  Company, 
which  it  controls  and  which  operates  the  big  Gary  plant. 
The  American  Steel  &  Wire  Company  has  its  head  office 
at  Cleveland,  but  its  plants  are  scattered  over  a  great 
many  States,  from  Illinois  to  Massachusetts,  and  it  also 
has  a  plant  at  Hamilton,  Ont. 

All  over  Pittsburg  and  its  environs  are  to  be  seen  the 
stacks  of  the  blast  furnaces  of  the  corporation  and  other 
steel  companies,  in  which  the  ore  is  transformed  into  pig 
iron,  the  first  step  in  the  manufacture  of  steel.  These 
furnaces  are  usually  built  in  "batteries,"  several  together. 
They  are  immense  ovens  of  steel  and  fire  brick,  in  which 
a  temperature  of  over  three  thousand  degrees  can  be  gen- 
erated, and  in  this  heat  the  ore  is  melted  into  iron.  From 
the  ground  to  the  tops  of  the  furnaces  run  skips  or  buck- 
ets on  inclined  tracks  to  carry  the  ore  to  their  mouths, 
where,  with  a  mixture  of  coke  and  limestone,  it  is  dumped. 
The  ore,  coke  and  limestone  soon  become  one  liquid  mass 
of  fire,  and  the  oven,  after  a  sufficient  time,  is  "tapped" 
by  breaking  open  a  small  opening  at  the  bottom  sealed 
with  mud  and  letting  the  molten  contents  run  out  through 
gutters  into  receiving  ladles.  The  iron,  being  heaviest, 
runs  out  first.  The  rest,  following,  is  diverted  into  an- 
other gutter  and  cooled,  when  it  is  used  in  making  cement, 
or  in  ballasting  railroad  tracks;  this  is  known  as  slag. 

Meanwhile  the  iron  is  carried  in  the  ladles  to  the 
mixers,  huge  cradles  holding  250  tons  of  molten  metal 
and  rocking  slowly  but  continuously,  into  which  diflferent 


The  Corporation's  Implements  137 

heats  of  iron  are  poured  and  brought  to  a  homogenous 
mixture.     This  is  done  to  ensure  uniformity  in  the  iron. 

William  R.  Jones,  or  Captain  Bill,  as  he  was  more  gen- 
erally known,  was  for  many  years  in  charge  of  the  Brad- 
dock  plant  of  the  old  Carnegie  company,  and  was  one  of 
the  most  picturesque  figures  that  ever  flitted  across  the 
pages  of  the  history  of  the  steel  industry.  Big,  hot-tem- 
pered, but  with  a  heart  of  gold,  he  was  an  ideal  leader 
for  a  steel  mill  army.  Gifted  with  unquenchable  energy 
and  enthusiasm,  he  acquired  the  habit  of  breaking  world 
steel  making  records,  and  in  the  earlier  days  of  his  man- 
agement of  the  Braddock  works,  he  time  and  time  again 
set  the  steel  world  agog  by  his  feats  in  the  matter  of  pro- 
duction. He  continued  to  do  so  until  the  steel  makers  of 
Europe  and  America  became  so  used  to  "Jo^es  breaking 
another  record"  that  it  went  unheeded.  The  Jones  mixer 
was  one  of  his  many  inventions. 

In  a  letter  to  me,  Mr.  Carnegie  said  of  Jones : 
"Jones  volunteered  in  the  Civil  War  as  a  private  and 
returned  at  its  close  a  captain.  You  can't  keep  a  good 
man  down.  I  wished  to  make  Jones  a  partner  along  with 
many  of  our  pioneers  and  informed  him  of  this  one  morn- 
ing, his  reply  was : 

"  T  don't  want  to  be  troubled  with  business  matters. 

You  just  give  me  a of  a  salary.' 

"  'All  right,  captain,'  I  said,  'hereafter  the  salary  of  the 
President  of  the  United  States  is  yours.'  And  so  it  was." 
From  the  mixer  the  iron  is  taken  to  the  converter  to 
be  turned  into  steel.  And  now  we  come  to  the  most 
spectacular,  the  most  impressive  sight  that  is  to  be  wit- 
nessed in  the  steel  industry,  the  theme  for  the  poet 
who  may  one  day  be  born  to  sing  the  Song  of  Steel. 

A  Bessemer  blow,  a  converter  in  action,  is  a  small- 
sized  Vesuvius  in  eruption,  a  volcano  tamed  to  do  the 
will  of  man.  From  its  great  steel  crater  shoot  forth 
flames  to  a  height  of  perhaps  a  hundred  feet,  showering 
sparks  around  and  creating  a  pyrotechnic  display  of  un- 
equalled splendor.    The  glare  lights  up  the  countryside 


138        The  United  States  Steel  Corporation 

for  miles  around,  while  the  hissing  and  roaring  of  the 
molten  iron,  or  rather  of  the  steel  groaning  in  its  birth 
throes,  forms  a  fitting  sound  accompaniment.  It  is  a 
sight  that  once  seen  is  never  forgotten. 

Both  Britain  and  America  claim  the  invention  of  the 
Bessemer  converter,  the  most  epoch-making  of  all  the  dis- 
coveries in  the  steel  trade  and  one  that  has  influenced  all 
industry,  civilization  itself,  immeasurably.  For  before  its 
use  steel  could  only  be  made  in  small  quantities  by  a  slow 
and  expensive  process  and  was  not  available  for  the  varied 
uses  for  which  it  is  employed  to-day.  Had  it  not  been  for 
the  Bessemer  converter  there  would  have  been  no  "Steel 
Trust." 

Shortly  before  the  middle  of  the  nineteenth  century  Wil- 
liam Kelly,  in  America,  and  Henry  Bessemer,  in  England, 
were  struck  by  the  idea  that  air  could  be  used  as  fuel, 
that  the  oxygen  in  air  would  serve  to  bum  out  the  im- 
purities in  iron  and  would  at  the  same  time  blow  these  im- 
purities away.  The  records  seem  to  be  slightly  in  favor  of 
Kelly  as  the  original  discoverer,  although  Bessemer  got 
all  the  credit,  and  knighthood,  for  his  work,  while  the 
American  got  nothing.  A  Bessemer  converter  is  actually 
a  big  retort  with  air  holes  at  the  bottom,  where  molten 
iron  is  purified  into  steel  with  air. 

The  first  attempts  at  "making  steel  with  air"  met  with 
scant  success.  The  pioneers  of  the  new  process  encount- 
ered the  same  sort  of  opposition  as  later  confronted 
George  Westinghouse  when  his  fertile  brain  gave  birth 
to  the  air  brake.  The  youthful  inventor  secured  an  inter- 
view with  Commodore  Vanderbilt,  head  of  the  New  York 
Central  system,  and  endeavored  to  interest  him  in  his  in- 
vention. 

"Do  you  mean  to  tell  me,"  Vanderbilt  asked,  "that  you 
propose  to  stop  a  railroad  train  running  at  full  speed  with 
nothing  but  air!" 

"Just  that,"  Westinghouse  replied. 
Vanderbilt  turned  to  his  secretary :    "Show  this  lunatic 
out  and  never  let  him  trouble  me  again,"  he  said. 


SIR   I11-:X1<\'    I'.KSSKMKK 


From  "The  Romance  of  Steel,"  by  H.  A.  Casson,  published  b;.-  the  A.  S.  Barnes  Co., 

Xevv  York 


The  Corporation's  Implements  139 

Kelly's  first  attempt  at  purifying  iron  with  oxygen  was 
a  failure.  The  blast  was  too  strong,  and  the  iron  was 
blown  away  along  with  the  impurities.  But  he  was  not 
to  be  discouraged,  and  at  length  got  the  blast  right,  only 
to  find  that  the  metal  that  resulted  was  too  soft,  for  a 
small  percentage  of  carbon  and  other  alloys  must  be  re- 
tained in  the  steel  to  give  it  hardness. 

Then  a  Scotch  ironmaker,  Robert  F.  Mushet,  came  for- 
ward with  the  practical  suggestion:  "Burn  out  all  the 
carbon,  then  add  the  amount  required  for  hardness,"  and 
the  thing  was  done. 

This  hissing,  roaring  volcano  is  easily  handled  by  one 
man.  As  he  watches  the  flame  that  pours  from  its  mouth, 
change  from  red  to  yellow  and  finally  burn  white,  he 
touches  a  lever  and  the  huge  caldron  turns  on  its  axis, 
while  workmen  quickly  shovel  into  it  carbon,  silicon,  etc. 
Then  it  is  further  tilted  and  the  contents  spilled  into  a 
ladle  which  swings  away  with  its  load  while  the  converter 
is  charged  afresh  with  iron. 

Open  hearth  steel,  more  popularly  used  nowadays  than 
the  Bessemer  product,  is  made  by  a  different  process. 
As  its  name  implies,  the  iron  is  changed  into  steel  in 
large  ovens,  into  w^hich  are  put  the  iron  and  the  different 
alloys  as  well  as  an  amount  of  scrap  necessary  in  the 
process.  When  the  proper  melt  is  arrived  at  the  metal, 
now  steel,  is  run  oflF  into  the  ladles. 

Times  change  and  steel-making  with  them.  Open 
hearth  is  fast  supplanting  Bessemer  steel  in  all  markets, 
and  the  day  does  not  appear  to  be  far  distant  when  Bes- 
semer steel  will  be  practically  a  thing  of  the  past.  Greater 
strength  is  claimed  for  the  newer  process.  But  it  must 
not  be  forgotten  that  the  discovery  of  Kelly  and  Bessemer 
gave  birth  to  the  modern  steel  industry  and  made  pos- 
sible the  Age  of  Steel.  No  doubt  open  hearth  will  later 
yield  to  another  process.  A  prominent  steel  maker  recently 
suggested  that  electric  steel  would  be  the  steel  of  the 
future. 


140        The  United  States  Steel  Corporation 

All  the  newer  steel  plants  are  equipped  with  open 
hearth  furnaces.  At  Gary,  this  is  the  only  product  made, 
and  even  the  Carnegie  Steel  Company  now  has  129  open 
hearth  furnaces  to  fourteen  Bessemer  converters.  Al- 
together the  Steel  Corporation's  converters  number  thirty- 
three,  and  its  open  hearth  furnaces  298. 

From  the  ladles  the  steel  is  f>oured  into  molds  of  cast 
iron  some  eight  feet  high  and  of  various  thicknesses  and 
widths,  where  it  is  allowed  to  cool  until  semi-soUdified. 
The  molded  metal  is  known  as  an  ingot,  which  is  steel  in 
its  first  form,  as  distinct  from  iron.  If  not  for  immediate 
use  the  ingot  is  left  to  cool  and  harden  completely.  Other- 
wise it  is  taken  to  the  soaking  pit  as,  when  taken  from  the 
mold,  its  outer  surface  is  comparatively  hard,  while  the 
inside  is  still  soft,  and  the  metal  could  not  be  rolled  in 
this  state.  In  the  soaking  pit  the  ingot  is  slowly  brought 
to  a  uniform  heat  throughout  and  is  then  ready  for  the 
rolling  mill,  where  it  is  to  be  transformed  into  steel  as 
we  know  it  commercially. 

The  various  processes  by  which  the  ingot  is  transformed 
into  rails,  wire,  tubes,  plates,  and  the  wide  diversity  of 
shap)es  made  by  the  corporation  cannot  be  detailed  here. 
In  one  mill  may  be  seen  the  rolling  of  the  ingot  into  the 
form  of  a  railroad  rail,  or  large  plate  or  beam.  In  an- 
other the  ingot  is  reduced  to  billets,  square  bars  of  steel, 
some  four  inches  thick  and  several  feet  long,  and  later 
follows  the  processes  of  rolling  the  billet  to  wire  rods, 
long,  sinuous  snakes  of  red  hot  metal,  to  be  cooled  and 
drawn  through  dies  to  still  smaller  sizes  of  wire,  or  to 
other  described  shapes.  Here  are  the  nail  mills — prob- 
ably the  noisiest  places  in  the  world — and  there  the  tube 
works,  where  thin  plates  of  steel  are  shaped  and  welded 
into  tubes  and  pipes  for  uses  of  all  kinds.  Altogether 
the  corporation  has  146  works  scattered  over  the  eastern 
half  of  the  United  States,  these  works  comprising  125 
blast  furnaces,  33  Bessemer  converters,  298  open  hearth 
furnaces,  68  warehouses,  711  mills  for  rolling  billets,  slabs, 
blooms,  sheet  bars,  rails,  plates,  shapes,  wire  rods,  skelp. 


The  Corporation's  Implements  141 

sheets,  merchant  steel  and  so  on;  61  mills  for  drawing 
and  making  the  various  kinds  of  wire  and  wire  nails ;  55 
tube  works  and  furnaces;  14  tin  plate  mills;  20  bridge 
and  structural  plants;  38  galvanizing  and  tinning  de- 
partments, and  37  other  steel  mills  of  one  kind  or  an- 
other, besides  an  armor  plate  plant,  axle  works,  horse- 
shoe mill,  etc.,  and  twelve  plants  for  making  iron  sul- 
phate and  five  cement  works.  It  has  a  total  capacity  of 
over  twenty  million  tons  of  ingots  and  some  fifteen 
million  tons  of  finished  steel. 

But  the  mining  of  coal  and  its  conversion  into  coke  is 
almost  as  important  a  part  of  the  steel  industry  as  the 
mining  and  refining  of  iron,  for  iron  and  steel  cannot  be 
made  without  coke.  The  Steel  Corporation's  coke  opera- 
tions are  carried  on  a  scale  in  harmony  with  the  general 
immensity  of  its  steel  making.  In  1913  the  big  company 
mined  30,786,573  tons  of  coal,  and  manufactured 
16,663,480  tons  of  coke. 

During  the  earlier  periods  of  the  history  of  the  steel 
trade  the  steel  and  iron  maker  did  not  produce  his  own 
coke,  but  bought  it.  With  the  gradual  integration  of  the 
industry  steel  companies  began  to  go  into  the  coke  busi- 
ness, and  this  is  the  rule  to-day,  although  many  important 
concerns  lack  facilities  for  making  the  coke  they  need. 
The  most  important  merger  of  steel  and  coke  interests  was 
that  which  brought  together  Andrew  Carnegie  and  Henry 
Clay  Frick,  and  later  resulted  in  giving  to  the  Steel  Cor- 
poration, when  it  absorbed  the  Carnegie  Steel  Company, 
control  of  the  vast  coal  mines  owned  by  the  Frick  in- 
terests. 

Frick,  who  has  a  right  to  a  high  place  among  the  in- 
teresting figures  of  American  industrial  history,  was  bom 
on  December  19,  1849.  He  began  his  business  life  as  an 
errand  boy  and  later  became  a  clerk  in  a  distillery  at 
Mount  Pleasant,  Pa.,  in  the  middle  of  the  coke  producing 
district.  The  young  man  grew  to  be  a  firm  believer  in  the 
future  of  the  coke  industry,  and  out  of  a  slender  salary 
saved  enough  to  make  some  small  investments  in  coke 


142        The  United  States  Steel  Corporation 

lands.  Eventually,  with  the  aid  of  a  Pittsburg  banker, 
he  organized  H.  C.  Frick  &  Company,  later  the  H.  C. 
Frick  Coke  Company,  and  within  a  few  years  be  became 
the  leading  figure  in  the  coke  trade. 

When  Carnegie  decided  that  integration  demanded  the 
acquisition  of  coke  properties,  he  secured  control  of  the 
Frick  company,  and  Frick  not  long  after  was  made  a 
partner  in  the  Carnegie  company.  To-day  Frick  is  a  di- 
rector and  a  member  of  the  Finance  Committee  of  the 
Steel  Corporation  and,  incidentally,  he  is  reckoned  as 
one  of  the  richest  of  American  millionaires. 

The  H.  C.  Frick  Coke  Company  is  still  the  most  im- 
portant by  far  of  the  corporation's  coke  making  subsi- 
diaries. It  owns  vast  areas  of  land  in  the  Connellsville 
district,  near  Pittsburg  and  supplies  the  greater  portion  of 
the  coke  used  by  the  big  company.  At  its  head  for  many 
years  was  Thomas  Lynch,  a  man  who  worked  his  way  up 
under  Frick  from  the  job  of  common  laborer  to  the  presi- 
dency of  the  big  coke  company.  Lynch  was  one  of  the 
most  esteemed  men  in  the  steel  trade,  his  popularity  being 
due  to  his  genial  disposition.  At  his  death  on  December 
29,  1914,  he  was  succeeded  by  Walter  H.  Chngerman. 

At  the  Frick  coke  works  coke  is  made  by  the  old  bee- 
hive process,  in  great  open  ovens,  long  rows  of  hundreds 
of  such  ovens  where  millions  of  tons  of  coal  are  turned 
into  coke  in  the  course  of  a  year.  The  modem  coke  mak- 
ing process  is  leading  away  from  these  ovens  on  account 
of  the  waste  of  coal  and  of  its  by-products  and  steel  plants 
now  being  built  are  equipped  with  the  modern  by-product 
ovens.  But  the  Frick  company  is  able  to  hold  its  own, 
and  will  for  a  long  time,  even  against  the  rapid  progress 
of  the  modernization  of  the  industry.  Will  it  be  obliged 
to  abandon  the  old  ovens  and  replace  them  with  the 
newer  type?  That  remains  to  be  seen;  it  is  not  highly 
improbable  that  the  development  of  steel  making  will 
make  necessary  such  a  course. 

Operations  of  the  Steel  Corporation  in  the  South  are 
carried  on  almost  exclusively  by  its  subsidiary,  the  Ten- 


The  Corporation's  Implements  143 

nessee  Coal,  Iron  &  Railroad  Company.  The  Tennessee 
company  is  altogether  self  contained,  having  coal,  lime- 
stone and  ore  supplies  within  a  few  miles  of  its  mills.  It 
is  "sitting  on  its  raw  supplies"  as  one  man  aptly  phrased 
it.  Thus  far  the  Tennessee  company  has  been  the  least 
profitable  of  the  corporation's  subsidiaries,  the  amount  of 
money  taken  out  being  absurdly  small  as  compared  with 
that  put  into  it,  but  the  condition  of  the  company  and  its 
marketing  possibilities  are  improving  and  the  outlook  for 
the  future  is  by  no  means  lacking  in  promise. 

The  tale  of  the  expansion  of  the  corporation's  activities 
is  not  yet  told.  This  is  indicated  by  the  building  of  a  large 
steel  mill  at  Duluth  and  the  plans  for  another  mill  across 
the  Canadian  border.  That  its  growth  will  not  be  too 
rapid  may  be  considered  certain,  if  for  no  other  reason 
than  that  its  management  is  averse  to  achieving  any- 
thing that  might  savor  of  monopoly.  But  it  would  be 
safe  to  say  that  the  future  development  of  the  Steel  Cor- 
poration in  regard  to  the  extension  of  its  steel  making 
facilities  will  keep  pace  with  the  development  of  the 
American  Continent. 


t 


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^:*^ 


iv 


CHAPTER  IX 
THE  STEEL  TOWNS. 

PITTSBURGH,  preeminent  in  steel,  the  home  of 
the  company  with  which  for  many  years  Andrew 
Carnegie  set  the  pace  for  the  rest  of  the  world  to 
follow  in  steel  making,  Pittsburgh,  her  skies  blackened 
with  the  smoke  of  hundreds  of  furnaces,  that  produces 
one-quarter  of  the  world's  supply  of  the  hard  metal,  nat- 
urally comes  to  mind  at  the  mention  of  the  steel  cities — 
she  is  first  of  them  all. 

Situated  in  the  extreme  West  of  the  State  of  Pennsyl- 
vania, on  the  border  of  the  great  coal  deposits  of  that 
State,  and  with  excellent  facilities  for  getting  all  her 
ore  at  low  costs,  having  moreover  an  unsurpassed  lo- 
cation in  respect  to  markets  for  her  finished  products, 
Pittsburgh  is  likely  to  keep  for  a  long  time  her  com- 
manding position  among  the  steel  towns.  And  yet,  I 
do  not  propose  to  include  Pittsburgh  among  the  steel 
towns  to  be  discussed  in  this  chapter. 

Pittsburgh  is  the  world's  steel  town.  And  this  is  the 
story  of  some  of  the  cities  that  owe  their  existence  to 
the  United  States  Steel  Corporation,  which  have  sprung 
up  as  a  result  of  its  manufacturing  activities,  and  in  the 
building  and  management  of  which  the  influence  of  the 
biggest  of  all  businesses  has  been  reflected. 

To  Gary,  Indiana,  then,  belongs  first  place. 

Bearing,  appropriately,  the  name  of  the  head  of  the 
corporation,  the  man  who  was  more  than  any  other  re- 
sponsible for  its  organization,  and  beyond  peradventure 
responsible  for  its  policies,  Gary  may  be  said  to  repre- 
sent, as  far  as  a  town  may,  the  spirit  of  the  corporation 
— efficiency. 


146        The  United  States  Steel  Corporation 

Gary's  history  is  less  than  ten  years  old.  The  site 
of  the  city,  in  the  northwest  corner  of  Indiana,  twenty- 
five  miles  from  Chicago,  was  a  sand  dune  on  which 
grew  only  scrub  oak  and  sage  brush  a  decade  ago.  Its 
inhabitants  were  wild  fowl  and  a  few  hardy  hunters 
and  fishermen,  and  on  one  memorable  occasion  a  cave 
among  the  dunes  gave  refuge  to  the  car  bar  bandits  of 
Chicago  until  their  surrender  was  forced  by  the  police. 
In  1906  the  Steel  Corporation's  management  decided  to 
build  a  big  steel  plant  in  the  middle  West  and  selected 
the  sand  waste  on  the  shore  of  Lake  Michigan,  and  thus 
was  the  city  of  Gary  born. 

The  magnitude  of  the  project  and  the  difficulties 
which  had  to  be  overcome  would  have  appalled  any  but 
so  large  a  corporation.  The  proposed  steel  plant  had 
to  have  a  town  to  house  its  employees  and  the  site  of 
Gary  ofifered  not  even  the  ordinary  facilities  for  the 
building  of  such  a  town.  It  had  no  harbor,  nothing 
could  grow  on  its  arid  soil,  these  were  only  two  of  the 
handicaps  to  be  overcome.  But  the  corporation  set  to 
work  to  build  Gary  literally  "from  the  ground  up"  and 
the  present  city,  with  a  population  of  40,000  was  the 
result. 

Work  on  the  building  of  the  steel  plant  and  city  was 
started  in  April,  1906.  To  the  Indiana  Steel  Co,  a  sub- 
sidiary of  the  Illinois  Steel  Co.  specially  organized  for 
the  purpose,  was  given  the  task  of  erecting  the  steel 
mills,  while  the  Gary  Land  Co.  was  organized  and  put 
in  charge  of  the  creation  of  the  city.  To  make  the  new 
town  inhabitable  and  attractive  nearly  two  million  cubic 
yards  of  earth  was  brought  into  Gary  and  used  for  the 
laying  out  of  parks,  boulevards  and  lawns.  So  far  some 
12,000  trees  have  been  planted  with  the  same  object 
and  with  satisfactory  success. 

Safe  haven  for  the  corporation's  vessels  was  provided 
by  the  cutting  of  a  harbor  slip  five  thousand  feet  long, 
twenty-two  feet  deep  and  two  hundred  and  fifty  feet 
wide,  affording  draft  and  anchorage  for  the  largest  lake 


The  Steel  Towns  147 

steamers  afloat  and  terminating  in  a  basin  large  enough 
for  these  vessels  to  turn  around  with  room  to  spare. 
In  the  calm  waters  of  this  harbor,  protected  by  a  break- 
water, the  ore  vessels  are  unloaded  at  the  rate  of  1,250 
tons  an  hour,  the  ore  being  conveyed  from  their  holds 
to  a  storage  yard  parallel  to  the  slip  until  needed  to  feed 
the  furnaces. 

How  great  was  the  task  of  building  Gary  may  be 
gathered  from  its  cost  to  the  Steel  Corporation.  The 
construction  of  the  steel  plant  and  the  creation  of  the 
town  has  involved  an  expenditure  of  nearly  $100,000,000 
so  far,  and  not  all  the  work  called  for  in  the  original 
plans  has  been  completed.  Of  the  56  open  hearth  fur- 
naces contemplated  43  have  been  built  and  are  operating 
at  present.  The  first  heat  of  pig  iron  was  produced  at 
Gary  on  December  21,  1908,  and  the  first  steel  ingot 
made  early  in  the  following  year. 

The  Gary  steel  plant  is  probably  the  largest  single 
steel  plant  in  the  world.  It  consists  of  eight  blast  fur- 
naces, forty-two  open  hearth  steel  furnaces,  a  rail  mill, 
billet  mill,  plate  mill,  five  merchant  mills,  slab  mill,  axle 
plant,  and  a  by-product  coke  plant  of  eight  batteries, 
each  of  70  ovens.  With  these  are  the  auxiliary  shops, 
machine  shop,  roll  shop,  electric  repair  shop,  roll  shop, 
boiler  shop,  blacksmith  shop,  etc.,  and  the  necessary 
electrical  equipment. 

Sixteen  gas  engines  of  2,000  H.P.  each,  supplemented 
by  four  3,000  H.P.  steam  engines,  are  used  to  operate 
the  blast  furnaces.  The  power  required  to  operate  the 
open  hearth  furnaces  and  steel  mills  is  supplied  by  sev- 
enteen 3,000  H.P.  gas  engines,  driving  an  equal  number 
of  electric  generators,  the  gas  for  these  engines  and  for 
the  blowing  engines  being  supplied  from  the  blast  fur- 
naces. In  this  way,  the  power  required  for  the  entire 
plant  is  supplied  by  blast  furnace  by-product  gas.  Part 
of  the  power  generated  is  transmitted  to  BuflFington, 
five  miles  away,  where  it  is  used  to  run  the  machinery 


148        The  United  States  Steel  Corporation 

of  the  Universal  Portland  Cement  Co.    The  rail  mill  is 
driven  by  three  electric  motors  of  6,000  H.P.  each. 
The  estimated  capacity  of  this  big  plant  is  as  follows: 

Pig  iron  1,200,000  tons 

Coke  3.000.000  " 

Ingots    2,160,000  " 

Billets,  blooms  and  slabs 1,480,000  " 

Sheet  bar  600.000  " 

Rails    1,000,000  " 

Merchant  bars  600,000  " 

Plates    200,000  " 

Axles 175,000  " 

During  the  construction  of  the  plant  over  10,000,000 
cubic  yards  of  material  were  excavated  and  over  1,200- 
000  cubic  yards  of  concrete  placed.  More  than  150,000 
tons  of  fabricated  steel  virere  used  in  its  construction. 
The  plant  covers  an  area  of  1,250  acres  and  a  plot  of 
land  of  approximately  the  same  size  and  adjoining  the 
existing  plant  is  being  reserved  for  possible  future  ex- 
tensions. 

Gary,  the  town,  was  incorporated  in  June,  1906,  only 
a  few  months  after  it  began  building.  At  the  first  elec- 
tion for  town  officials,  thiry-three  votes  were  cast. 
Seven  years  later,  in  1913,  over  9,000  voters  cast  bal- 
lots !     Gary's  population  is  placed  at  40,000  to-day. 

When  the  Steel  Corporation  decided  to  build  Gary  it 
determined  to  make  a  modern  city.  The  town  was  care- 
fully laid  out  by  competent  engineers  and  ample  provi- 
sion allowed  for  growth.  The  town  now  covers  thirty- 
one  square  miles,  and  contains  120  miles  of  paved  streets 
— the  two  principal  thoroughfares,  Broadway,  100  feet 
wide,  and  Fifth  Avenue,  80  feet  wide,  being  paved  with 
concrete  block  and  the  other  streets  with  macadam.  Be- 
tween the  streets  are  alleys  under  which  the  gas,  water 
and  sewer  pipes  are  laid,  this  obviating  the  necessity  of 
tearing  up  the  street  paving  for  repairs  to  service  pipes. 
There  are  over  60  miles  of  these  pipes  laid  in  Gary. 

In  the  residential  section  of  Gary  are  many  pretty 
homes  owned  by  steel  workers  and  others.  The  Gary 
Land  Co.  has  erected  a  number  of  these  houses — over 


t '., 


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.     ...    i^ahiJ 

The  Steel  Towns  149 

nine  hundred — and  these  are  offered  for  sale  at  prices 
representing  the  cost  of  the  land  and  improvements, 
with  a  special  discount  to  plant  employees.  The  prices 
of  these  houses  range  from  $1,500  to  $25,000.  The  com- 
pany also  offers  for  rent  at  exceedingly  nominal  rates 
houses  usually  built  of  concrete  and  equipped  with  elec- 
tricity and  other  modern  conveniences.  All  these  dwell- 
ings are  attractively  finished  and  each  has  its  plot  of 
green,  large  or  small. 

Perhaps  the  finest  building  in  Gary  is  the  home  of  the 
Y.  M.  C.  A.  given  to  the  city  by  Judge  Gary  and  cost- 
ing $260,000.  This  building  contains  a  gymnasium, 
swimming  pools,  class  rooms,  dormitories  and  so  on. 
Its  equipment  was  the  gift  of  the  Steel  Corporation. 
Opposite  the  Y.  M.  C.  A.  is  the  Library,  erected  by 
Andrew  Carnegie,  and  not  far  off  is  now  being  con- 
structed a  Federal  Building  at  a  cost  estimated  at  $150,- 
000.  The  Gary  Hospital,  built  and  maintained  by  the 
Steel  Corporation,  is  absolutely  modern  in  its  equipment 
and  management  and  compares  favorably  with  similar 
institutions  in  the  largest  cities. 

In  all  things  Gary  stands  for  modernity  and  effi- 
ciency. Nowhere  is  this  illustrated  as  it  is  in  the  school 
system,  for  the  city  is  likely  to  go  down  to  fame  as  the 
home  of  the  modern  system  of  education.  As  the  Gary 
educational  plan  is  now  being  extensively  copied  in 
many  large  cities,  among  them  New  York,  the  metrop- 
olis of  the  Western  Hemisphere,  it  is  well  worth  de- 
voting a  little  space  to  the  consideration  of  the  Gary 
schools. 

At  the  head  of  the  Gary  school  system  is  Professor 
William  Wirt,  an  enthusiast  on  the  training  of 
youth.  When  the  town  officials  and  Steel  Corpora- 
tion officials  took  up  the  matter  of  education,  they 
went  at  it  in  their  usual  thorough  manner  and  looked 
around  for  the  best  school  head  to  be  obtained.  Wirt 
was  chosen  for  the  post  and  he  was  given  practically  a 


150        The  United  States  Steel  Corporation 

free  hand  in  modelling  the  entire  system,  the  result  of 
which  was  Emerson  and  Froebel  schools. 

Wirt  proceeded  to  turn  topsy-turvy  many  of  the  old 
ideas  of  education.  He  had  the  big  advantage  of  being 
able  to  arrange  all  details  of  the  school  system,  even 
to  the  building  of  the  schools,  in  accordance  with  his 
plan,  and  evolved  a  scheme  under  which  the  young  of 
both  sexes  enjoy  a  vocational  training  completely  equip- 
ping graduates  from  the  schools  to  enter  practically 
any  chosen  walk  of  life.  But  he  has  accomplished 
something  bigger  than  this — he  has  made  education  at- 
tractive to  the  boys  and  girls  who  have  the  good  for- 
tune to  come  under  his  care. 

The  three  school  buildings  together  offer  educational 
facilities  to  over  3,000  children.  They  are  surrounded 
by  spacious  playgrounds,  it  being  one  of  Wirt's  theories 
that  play  is  absolutely  essential  to  the  young,  and  work 
and  play  are  so  alternated  as  to  double  the  number  of 
children  which  the  schools  would  ordinarily  accommo- 
date, one  class  working  while  another  uses  the  play- 
grounds. 

All  the  regular  school  subjects  are  taught  in  the  Gary 
schools,  as  well  as  many  others,  including  music  and 
a  number  of  sciences.  A  large  auditorium  is  devoted 
to  the  study  of  history  and  geography,  which  are  in- 
culcated together  with  the  aid  of  lantern  slides,  visual- 
ization of  scenes  and  events  being  made  use  of  to  at- 
tract interest  and  assist  memorization.  The  same  idea 
is  employed  in  other  studies,  the  room  devoted  to  nat- 
ural history,  for  instance,  being  equipped  with  stuffed 
animals  and  even  with  small  live  ones. 

The  range  of  vocational  subjects  taught  ranges  from 
painting  and  carpentry  to  accountancy  and  architectural 
draftsmanship.  The  school  is  equipped  with  a  carpenter 
shop,  paint  shop,  foundry,  draughting  room,  etc.,  and 
each  trade  or  profession  is  inculcated  not  by  theory  but 
practically.  The  teachers  of  these  subjects  are  not  col- 
lege professors  but  skilled  workers  in  the  different  lines 


The  Steel  Towns  151 

and  the  students  or  apprentices  to  each  trade  make 
articles  used  in  the  school  itself,  this  serving  not  only  to 
reduce  the  cost  of  maintenance  of  the  schools  but  to 
give  the  pupils  the  interest  in  their  work  that  comes 
from  seeing  the  product  of  their  skill  in  actual  use. 

Thus,  the  youthful  carpenters  make  tables,  chairs, 
desks,  etc.,  and  very  creditable  ones;  the  painters  keep 
the  school  rooms  and  buildings  spic  and  span ;  the 
draftsmen  plan  additions  or  improvements ;  the  account- 
ants keep  the  school  accounts.  In  every  case  a  concrete 
end  is  served,  to  the  benefit  of  the  school  and  pupil. 

Nor  is  the  female  of  the  species  forgotten.  A  kitchen 
and  lunch  room,  run  by  the  girls,  and  selling  lunches  to 
their  fellow  students,  gives  the  small  housewife  actual 
experience  in  the  essentials  of  good  housekeeping. 
Laundry  work,  sewing  and  other  feminine  industries  are 
inculcated  similarly. 

In  that  part  of  the  school  buildings  and  grounds  de- 
voted to  play  are  to  be  found  swimming  pools — one  for 
boys  and  another  for  girls — tennis  courts,  baseball  dia- 
monds, swings  and  other  aids  to  enjoyment  loved  by 
the  young  of  all  ages  and  sexes.  Play  is  supervised  by 
teachers  who  devote  all  their  time  to  it,  Mr.  Wirt  hold- 
ing that  competent  instruction  is  needed  in  this  as  in 
history,  geography  or  other  studies. 

How  the  Gary  educational  system  appeals  to  the  boys 
and  girls  is  perhaps  best  illustrated  by  the  following 
example,  related  to  me  by  a  foreman  of  the  mills  of 
the  American  Sheet  &  Tin  Plate  Co.,  which  has  a  large 
plant  on  the  outskirts  of  the  town.  I  will  tell  the  story 
in  his  own  words,  as  nearly  as  I  can  remember  them  : 

"Some  two  years  ago  my  nephew,  left  an  orphan  by 
the  death  of  his  mother,  came  from  Pittsburgh  to  my 
care.  I  had  been  told  that  the  boy  was  incorrigible  and 
would  pay  no  attention  to  his  studies,  and  it  proved  I 
was  correctly  informed.  Upon  his  arrival  in  Gary  he 
flatly  refused  to  make  any  pretense  of  studying  and  it 


152        The  United  States  Steel  Corporation 

was  some  weeks  before  I  could  even  induce  him  to  visit 
Mr.  Wirt  with  me. 

"Upon  the  boy's  explaining  to  Mr,  Wirt  that  he  did 
not  consider  himself  in  need  of  an  education  as  he  in- 
tended to  be  a  painter,  the  professor  suggested  that  he 
come  to  school  and  learn  how  to  paint,  assuring  him 
that  he  would  not  be  forced  to  do  anything  he  objected 
to.  Naturally,  the  boy,  who  was  never  so  happy  as 
when  dabbling  with  a  paint  brush,  accepted  the  sug- 
gestion. 

"The  first  day  he  was  given  a  pot  of  paint  and  a 
brush  and  put  under  the  care  of  the  painter,  and  in  a 
short  time  he  was  fairly  adept  at  laying  on  color.  Then, 
one  day,  he  was  informed  that  some  of  the  classrooms 
were  to  be  re-decorated  in  several  colors  and  that  he 
was  to  have  the  job,  provided  he  could  make  a  satis- 
factory bid  for  the  contract. 

"That  was  a  stumper.  The  boy  confessed  his  inabil- 
ity to  estimate  and,  the  necessity  for  a  knowledge  of 
mathematics  being  thus  forced  upon  him,  took  up  the 
study  enthusiastically.  Gradually  he  was  brought  to 
appreciate  the  advantage  of  other  studies. 

"To-day  that  boy  would  miss  his  breakfast  to  get  to 
school.  It  would  take  a  padlock  and  chain  to  keep  him 
away  from  his  studies." 

Gary  is  growing  rapidly.  Two  corporation  sub- 
sidiaries, besides  the  Indiana  Steel  Co.,  already  have 
plants  there.  There  are  the  American  Sheet  &  Tin  Plate 
Co.,  and  the  American  Bridge  Co.,  and  the  American 
Locomotive  and  American  Car  &  Foundry  companies 
plan  to  erect  plants  in  its  suburbs  in  the  near  future. 
The  Gary  Screw  &  Bolt  Co.,  a  local  enterprise,  has 
already  constructed  a  plant  for  the  making  of  bolts, 
nuts  and  screws. 

No  less  than  five  trunk  lines  connect  with  Gary. 
These  are  the  Lake  Shore  &  Michigan  Southern,  Balti- 
more &  Ohio,  Wabash,  Michigan  Central,  Pennsylvania 
and  Nickel  Plate.     Smaller  roads  entering  Gary  are  the 


The  Steel  Towns  153 

Lake  Shore  &  South  Bend  Ry.,  Gary  &  Southern,  Gary, 
Valparaiso  &  Eastern  and  the  Gary,  Hobart  &  Eastern. 
The  Elgin,  Joiiet  &  Eastern,  the  corporation  road,  has 
a  large  freight  yard  near  the  steel  works,  designed  to 
accommodate  15,000  cars. 

A  village  in  1906  Gary  is  now  a  city  of  the  second 
class,  having  attained  this  rank  in  April,  1915. 

Citizens  of  Gary  are  ashamed  of  only  one  thing  about 
their  town.  This,  appropriately  known  as  the  "Patch" 
is  a  small  section  thrusting  itself  like  a  wedge  into  the 
business  part  of  the  city  and  giving  housing  to  nearly 
200  saloons  and  a  number  of  dives.  The  site  of  the 
Patch  was  not  acquired  by  the  corporation  because  of 
some  question  regarding  validity  of  title,  so  the  big  com- 
pany had  no  power  of  restriction  over  its  development. 
Gary  men  say  that  a  means  will  be  found  soon  to  clean 
up  the  section,  and  for  the  good  of  the  town  it  is  to  be 
hoped  that  it  will. 

Built  on  the  Gary  model,  Morgan  Park,  a  suburb  of 
Duluth,  is  now  being  erected  to  house  the  workers  at 
the  corporation's  new  mill  near  that  city.  The  plant, 
which  will  be  operated  by  the  Minnesota  Steel  Co.,  will 
give  work  to  from  3,000  to  5,000  men  so  that  a  fair 
sized  town  is  necessary  for  their  accommodation  and 
that  of  their  families.  The  section  now  being  completed 
has  170  houses  and  350  apartments  built  by  the  corpora- 
tion  and  there  is  ample  space  provided  for  as  many  addi- 
tional dwellings. 

As  the  settlement  is  within  the  city  limits  of  Duluth 
the  educators  of  that  town  will  have  some  say  on  mat- 
ters relating  to  the  organization  of  schools  there,  but  it 
is  planned  to  erect  a  school  accommodating  1,000  chil- 
dren and  to  model  its  method  of  teaching  on  the  Gary 
system. 

At  Morgan  Park  the  mill  worker  will  be  able  to  rent 
a  modern  apartment,  with  every  convenience  including 
electricity,  at  $3.75  per  room  a  month. 


154        The  United  States  Steel  Corporation 

One  of  the  difficulties  in  industrial  towns  has  always 
been  to  adequately  provide  for  unmarried  men,  who 
form,  roughly,  40  per  cent,  of  all  the  workers.  An  inno- 
vation is  to  be  tried  at  Morgan  Park  where  large  houses 
with  many  club  conveniences,  but  run  on  the  boarding 
house  system,  will  be  constructed.  It  is  hoped  by  these 
to  give  the  single  men  the  combined  advantages  of  a 
club  and  the  domestic  atmosphere  of  a  home. 

Scattered  all  over  the  iron  mining  regions  are  a  num- 
ber of  small  towns  which  might  rightly  be  categoried  as 
steel  towns  as  the  influence  of  the  Steel  Corporation 
is  distinctly  perceptible  in  their  management,  and  their 
leading  citizens  are,  for  the  greater  part,  minor  corpora- 
tion officials.  In  all  these  towns  a  note  of  sanitation, 
of  modern  community  management  is  struck  and  the 
visitor  is  pleasantly  impressed  with  clean  streets,  excel- 
lent lighting,  neat  well  kept  houses  and  other  things 
that  go  towards  making  a  "good"  town,  notably  the 
scarcity  of  saloons  and  other  objectionable  features. 

Nowhere  is  the  contrast  between  the  towns  under 
Steel  Corporation  influence  and  others  so  obvious  as  in 
the  South.  The  Tennessee  Coal  &  Iron  Co.  is  responsi- 
ble for  the  foundation  of  a  number  of  small  towns  and 
mining  camps  and  these  are  all  exceptionally  well  man- 
aged. In  some  places  are  to  be  seen  towns  part  of 
which  have  been  built  up  by  the  corporation,  while  part 
"just  grew,"  and  one  may  recognize  without  being  told 
just  when  the  line  of  Steel  Corporation  influence  is 
passed.  A  feature  of  these  towns  is  always  the  com- 
missary where  food,  clothes,  etc.,  are  sold  to  residents. 
These  commissaries  are  in  keeping  with  the  corporation 
spirit  of  efficiency,  which  includes  sanitation  and  might 
well  serve  as  models  for  stores  and  markets  in  larger 
cities.  The  Tennessee  company  has  also  co-operated 
with  the  State  of  Alabama  in  providing  excellent  educa- 
tional facilities,  which  include  not  alone  the  ordinary 
school  curriculum,  but  courses  in  domestic  science,  etc., 
both  for  children  and  adults. 


The  Steel  Towns  155 

The  problems  that  confront  the  corporation  in  the 
South  are  different  from  those  it  faces  in  the  North,  and 
must  be  handled  differently.  Not  the  least  of  these  is 
the  color  question,  which  itself  is  largely  responsible 
for  the  poorer  educational  average  below  the  Mason  and 
Dixon  line.  The  management  of  the  corporation's 
Southern  subsidiary,  with  the  full  co-operation  of  the 
New  York  management,  has  set  itself  seriously  to  the 
task  of  settling  these  problems  and  has  made  wonderful 
headway,  to  the  lasting  benefit  of  the  communities 
wherein  the  Tennessee  company  operates. 

Fairfield,  Alabama,  has  been  called  the  South's  model 
industrial  city.  This  town  was  erected  to  house  the 
workers  at  the  by-product  plant  of  the  Tennessee  Coal, 
Iron  &  Railroad  Co.,  and  the  American  Steel  &  Wire 
Co.'s  wire  mill,  not  far  from  Birmingham. 

A  more  beautiful  site  could  scarcely  have  been  se- 
lected for  such  a  purpose  than  that  chosen  for  the  laying 
out  of  Fairfield.  The  work  was  done  by  a  realty  com- 
pany, independent  of  the  corporation,  but  acting  in 
entire  harmony  with  it  and  its  ideas,  and  as  a  result  the 
town  is  one  of  which  its  inhabitants  may  justly  be 
proud. 

Situated  on  softly  undulating  ground,  amid  the  lux- 
uriant foliage  of  the  South,  Fairfield  offered  exceptional 
opportunities  to  its  builders  for  achieving  artistic  effects 
in  its  layout,  opportunities  of  which  they  availed  them- 
selves to  the  full.  The  town,  not  far  from  the  heat  and 
dirt  of  the  coke  ovens  and  steel  mills,  looks  more  like 
an  exclusive  suburb  of  some  large  city  than  a  town 
planned  for  industrial  workers.  Its  well-paved  streets 
are  shaded  by  green  trees,  through  the  leaves  of  which 
peep  out  the  fronts  of  modern  houses.  Even  the  modern 
trolley  car  running  through  its  main  streets,  and  its 
equally  modern  public  utility  arrangements  fail  to  dis- 
turb the  peaceful  charm.  Fairfield  has  rightly  been 
called  "the  city  of  homes." 


156        The  United  States  Steel  Corporation 

The  H.  C.  Frick  Coke  Co.  has  set  itself  the  task  of 
making  attractive  the  coal-mining  towns  of  the  Con- 
nellsville  region.  By  the  usual  corporation  methods  of 
sanitation,  of  making  personal  and  community  cleanli- 
ness easily  attainable  it  has  raised  very  materially  the 
standard  of  living  in  the  coal  towns,  and  the  standard 
of  management  of  the  towns  themselves.  It  has  even 
managed  to  make  many  of  these  towns  attractive — if 
the  reader  has  even  been  through  coal-mining  regions 
he  will  appreciate  the  size  of  this  achievement — by  en- 
couraging gardening  by  means  of  prizes  and  so  on,  and 
by  fostering  community  pride.  It  has  set  new  com- 
munity standards  in  the  coal  districts. 

To  the  late  George  G.  McMurtry  must  be  given  much 
credit  for  the  movement  for  bettering  conditions  in 
industrial  centers.  Over  30  years  ago  Mr.  McMurtry 
conceived  and  laid  out  a  model  city  in  the  environs  of 
Pittsburgh  for  the  workers  of  the  American  Sheet  Steel 
Co.  The  town  laid  out  by  the  former  head  of  the 
Sheet  Steel  company  will  stand  as  a  lasting  monu- 
ment to  him,  though  it  does  not  bear  his  name — Van- 
dergrift,  Pa.,  the  first  of  the  Steel  Towns, 


PLATE  BEXIJIXC,  MAC  IIIXI 


SAME  AS  ABOVE,  "  SAFETY  FIRST 


CHAPTER  X 
SAFETY  FIRST— SANITATION— WELFARE. 

AS  the  world  grows  older  and  wiser  and  civilization 
progresses,  one  by  one,  old  ideas  are  being  thrown 
into  the  discard,  and  nowhere  is  this  more  notice- 
ably so  than  in  the  realms  of  business  and  industry. 
Principles  of  doing  business,  one  held  as  cardinal,  are 
now  coming  to  be  recognized  as  immoral,  not  alone 
from  the  human,  but  from  the  economic  standpoint. 

One  of  these  is  the  old  doctrine  of  "caveat  emptor," 
let  the  buyer  beware.  The  far-seeing  merchant  of  the 
present  day  recognizes  that  as  a  matter  of  policy  as  well 
as  of  honesty  he  must  take  upon  his  own  shoulders  the 
responsibility  for  what  he  sells.  Another  principle, 
which  might  be  styled  "let  the  worker  beware,"  one 
which  laid  down  the  law  that  the  industrial  worker  was 
supposed  to  be  fully  cognizant  of  whatever  risks  were 
involved  in  his  trade,  and  to  assume  these  risks  himself, 
is  gradually  being  legislated  out  of  existence,  compensa- 
tion laws  of  recent  years  taking  the  liability  ofif  the 
shoulders  of  the  worker  and  placing  it  where  it  rightly 
belongs,  on  the  industry. 

The  United  States  Steel  Corporation's  stockholders 
may  justly  take  pride  in  the  fact  that  the  big  company 
which  they  own  did  not  wait  for  the  lawmakers  to  force 
upon  it  the  assumption  of  this  liability,  but  accepted  it 
voluntarily  before  a  single  State  had  passed  a  work- 
men's compensation  act.  Prouder,  perhaps,  that  the 
compensation  and  relief  plan  for  injured  workmen  pro- 
mulgated by  the  corporation  in  1910  has  served  as  a 
model  for  a  number  of  States  in  drafting  such  legisla- 
tion and  is  an  exceedingly  fair  and  liberal  one. 


158        The  United  States  Steel  Corporation 

Although  the  Steel  Corporation,  as  evidenced  by  its 
action  in  putting  into  force  its  compensation  plan,  gave 
evidence  of  its  hearty  approval  of  the  theory  of  indus- 
trial compensation  legislation,  the  management  of  the 
big  company  is  distinctly  opposed  to  certain  forms  of 
such  legislation,  notably  State  insurance,  grounding  its 
objection  on  the  claim  that  this  takes  away  from  the 
employer  all  incentive  to  adopting  measures  for  the  pre- 
vention of  accidents.  For  compensation,  after  all,  is 
merely  a  palliative,  not  a  cure,  it  does  not  strike  at  the 
root  of  the  disease,  and  in  the  final  analysis,  the  im- 
portant thing  is  the  prevention  of  accidents  so  far  as 
possible. 

In  this  the  up-to-date  employer  has  gone  much  fur- 
ther than  the  legislators.  He  has  gone  to  the  very  heart 
of  the  industrial  accident  question  by  taking  what  means 
he  might  to  eliminate,  or  at  least  to  minimize,  the  risks 
incidental  to  the  industry  in  which  he  is  engaged.  He 
subscribes  to  the  slogan  "Safety  First,"  safety  even  be- 
fore profits,  for  he  is  beginning  to  realize  that  accidents 
are  uneconomic  and  that  their  prevention,  even  if  ap- 
parently costly  at  the  beginning,  must  pay  in  dollars 
and  cents  in  the  'ong  run.  In  other  words,  the  modern 
employer  of  labor  is  becoming  convinced  that  safety 
methods,  or  insurance  before  accidents,  are  as  necessary 
as  are  measures  to  prevent  fire  instead  of  relying  upon 
fire  insurance  companies  to  make  good  a  loss  from  this 
cause. 

Although  individual  efforts  to  minimize  industrial 
hazards  had  been  made  by  some  companies  before  the 
Steel  Corporation  existed — notably  in  the  case  of  some 
of  the  companies  merged  into  the  "Steel  Trust" — the 
corporation  may  with  reason  claim  the  distinction  of  be- 
ing the  real  pioneer  of  the  safety  movement.  For  not 
only  did  it  organize,  systematize  and  enormously  expand 
the  work  of  the  several  companies,  but  it  championed 
the  cause  of  safety  before  the  industrial  world. 

Through  its  example,  as  well  as  by  means  of  a  vigor- 


Safety  First — Sanitation — Welfare  159 

ous  campaign  carried  on  by  its  safety  committee,  it 
preached  the  doctrine  of  safety  first.  The  largest  em- 
ployer of  labor  in  the  world  in  its  adoption  of  such  a 
policy  forced  the  recognition  of  the  policy  upon  industry 
generally,  and  as  a  result  of  the  safety  campaign  started 
by  the  corporation  in  1906,  safety  first  methods  are  to  be 
seen  in  every  steel  mill  in  the  United  States  to-day,  and, 
in  fact,  in  a  vast  number  of  plants  devoted  to  other  in- 
dustries. The  results  of  the  work  of  the  corporation's 
safety  committee  are  at  the  disposal  of  whoever  cares 
to  avail  himself  of  them.  At  its  safety  museum  at  71 
Broadway,  New  York,  are  received  daily  letters  from 
concerns  in  every  line  of  industry,  and  in  every  instance 
an  answer  is  sent  giving  all  the  assistance  possible  for 
the  general  cause  of  safety. 

But  more  than  this,  the  efforts  of  the  corporation  have 
resulted  to  a  great  extent  in  educating  the  worker  to 
expect  and  demand  that  every  reasonable  precaution  be 
taken  to  protect  him  from  pain  and  injury,  and  his  fam- 
ily from  the  loss  of  a  wage-earner,  to  seek  safety  for 
himself,  and  to  recognize  the  right  of  his  fellow  work- 
men to  it. 

From  the  aspect  of  liability  accidents  may  be  divided 
into  two  broad  classes.  The  law  recognizes  a  difference 
between  an  injury  to  a  worker  due  to  his  own  careless- 
ness, or  one  attributable  to  his  own  negligence.  But  the 
Steel  Corporation,  in  its  accident  relief  plan,  makes  no 
such  distinction.  It  recognizes  only  that  the  worker  has 
been  temporarily  or  permanently  prevented  from  earn- 
ing a  livelihood,  or  that  his  family  has  suffered,  and 
it  compensates  without  question  for  the  loss. 

So  to  secure  the  best  results,  economically,  from  its 
safety  campaign,  it  is  obvious  that  it  is  not  enough  for 
the  big  company  to  set  up  safety  guards,  warnings  of 
danger  and  similar  contrivances.  It  is  just  as  necessary 
that  the  worker  must  be  taught  to  take  advantage  of 
the  safeguards  provided  him,  to  regard  the  seeking  of 
safety  as  a  duty  he  owes  to  himself,  his  family,  and  his 


160        The  United  States  Steel  Corporation 

fellow  workmen.  In  its  campaign  for  the  prevention 
of  accidents  the  corporation  has  sought  to  accomplish 
both  these  ends,  and  the  educational  side  of  the  work 
has  been  by  far  the  most  difficult. 

How  much  so  may  be  gathered  from  the  fact  that,  in 
1914,  after  eight  years  of  safety  education,  nearly  50% 
of  all  the  accidents  occurring  in  the  corporation's  mines 
or  plants  were  distinctly  traceable  to  indifference  or 
thoughtlessness  on  the  part  of  the  men  themselves.  For 
the  worker  is  inclined  to  regard  with  something  of  dis- 
dain the  risks  incidental  to  his  work  and  often  regards 
it  as  rather  cowardly  to  seek  to  avoid  these  risks.  In- 
difference to  danger  is  too  often  accepted  as  a  hallmark 
of  personal  courage,  and  to  the  dangers  of  one's  employ- 
ment as  a  sign  of  skill  and  experience.  Just  as  a  small 
boy  will  jump  on  a  moving  car  to  "show  off,"  the  worker 
will  often  incur  risks  for  the  same  reason.  A  railroad 
man  will  board  a  moving  engine  from  the  middle  of 
the  track  solely  because  to  do  so  seems  to  be  accepted  as 
proof  of  his  skill  and  experience.  It  is  to  such  causes  that 
a  large  percentage  of  industrial  accidents  are  due,  and 
the  employer  of  labor  generally  finds  that  the  greatest 
problem  to  be  met  in  instituting  a  safety  campaign  is 
to  persuade  the  worker  that  such  indifference  to  danger 
is  childish,  and  that  real  skill  and  efficiency  lies  in  the 
doing  of  things  in  the  correct,  which  is  the  safe,  way. 

Safety  work  may  be  divided  into  three  parts;  organi- 
zation ;  safety  appliances  and  devices ;  education. 

It  goes  without  saying  that  to  get  the  best  results  in 
any  campaign  efficient  organization  is  essential.  The 
Steel  Corporation  has  organized  a  central  safety  com- 
mittee, under  whose  charge  the  general  work  of  the 
prevention  of  accidents  fall.  Each  subsidiary  company 
also  has  its  own  committee  on  safety,  and  there  are  fur- 
ther subdivisions  into  sub-committees  at  each  mill  or 
mine.  It  is  the  duty  of  the  sub-committees  to  see  that 
all  safety  rules  are  obeyed,  and  to  make  suggestions  for 
furthering  the  cause,  while   the  other  committees  re- 


Safety  First — Sanitation — Welfare  161 

ceive  and  act  upon  these  suggestions  and  attend  to  the 
financial  and  other  aspects  of  the  campaign.  For  the 
prevention  of  accidents  costs  a  great  deal  of  money,  the 
corporation  having  expended  in  ten  years  something 
like  $6,000,000  in  this  work  alone.  But  the  necessary 
funds  are  never  stinted.  At  the  first  meeting  of  the 
safety  committee  Judge  Gary  stated  that  the  corpora- 
tion would  recognize  any  practical  step  undertaken  for 
obviating  injuries  to  its  workers,  and  would  vote  the 
wherewithal  for  it. 

So  as  to  bring  home  to  every  worker  the  safety  idea 
the  personnel  of  the  sub-,  or  mill  committees,  is  con- 
stantly changed,  with  the  view  that  each  worker  will 
take  part  in  the  work  sooner  or  later.  In  1914  alone, 
8,400  men  served  on  the  several  committees. 

The  first  work  of  the  safety  committees,  naturally, 
was  to  instal  devices  on  machines  that  had  been  the 
cause  of  accidents  with  the  object  of  preventing  the 
recurrence  of  these  accidents.  The  educational  cam- 
paign came  later  as  it  was  forced  upon  the  safety  work- 
ers that  the  saving  of  the  worker  eventually  lay  in  his 
own  hands.  Once  this  was  recognized,  the  educational 
work  was  taken  up  enthusiastically,  and  to-day  forms 
the  most  important  side  of  the  "boost  for  safety"  cam- 
paign. 

Print  and  paint  are  used  liberally  to  keep  the  idea  of 
caution  ever  before  the  mind  of  the  worker.  Safety 
warnings  are  posted  here  and  there  all  over  the  mills, 
etc.,  and  at  the  entrance  to  many  plants  there  are  dis- 
played big  signs,  electrically  lighted  at  night,  on  which 
changing  mottoes  constantly  impress  the  safety  first 
idea.  Blank  walls,  pay  envelopes  and  other  available 
spaces  are  all  impressed  into  the  work  and  are  used  for 
printing  of  safety  warnings. 

In  erecting  safety  appliances  the  corporation  spends 
yearly  approximately  $700,000.  Any  idea  suggested  by 
a  workman  for  the  prevention  of  accidents  of  however 
trivial  a  nature  is  given  a  careful  hearing,  and  acted 


162        The  United  States  Steel  Corporation 

upon  in  nine  cases  out  of  ten.  For  the  safety  committee 
takes  for  itself  the  following  motto:  "Not  only  is  an 
ounce  of  prevention  worth  a  pound  of  cure,  but  rather 
let  us  have  a  pound  of  prevention  than  an  ounce  of 
cure." 

These  safety  devices  are  too  numerous  to  mention  in 
detail.  They  run  from  guards  on  the  handles  of  wheel- 
barrows to  prevent  the  crushing  of  fingers  in  passing 
through  a  doorway,  to  appliances  for  derailing  a  car 
when  there  is  danger  of  collision,  guards  over  exposed 
flywheels  or  other  moving  machinery,  enclosed  ladders 
to  prevent  falls,  goggles  to  safeguard  the  eyes  of  work- 
ers from  explosion  of  metal  or  flying  chips,  and  sub- 
ways under  railway  tracks  to  eliminate  the  danger  of 
crossing  the  tracks  of  a  busy  yard. 

Although  a  workman  who  invents  a  marketable 
safety  device  may  secure  a  patent  on  it  if  he  desires,  the 
corporation  itself  never  patents,  being  only  too  glad  to 
put  at  the  disposal  of  other  employers  every  means  it 
can  to  assist  them  in  eliminating  accidents.  Its  manage- 
ment holds  that  the  safety  campaign,  while  good  econ- 
omy, is  largely  humanitarian,  and  should  not  be  com- 
mercialized. 

For  several  years  past  the  safety  committee  of  the 
Steel  Corporation  has  been  trying  to  make  the  safety 
idea  universal,  and  it  has  put  into  use  a  danger  signal 
which  has  been  adopted  by  a  number  of  industrial  or- 
ganizations in  this  country.  This  signal  is  a  plain  red 
ball,  innocent  of  lettering.  It  is  pointed  out  that  this 
sign,  speaking  no  language  and  therefore  speaking  all 
tongues,  can,  by  educating  the  worker  of  the  world,  be 
made  understandable  everywhere  and  at  all  times,  and 
will  therefore  be  especially  serviceable  in  promoting 
safety  among  foreign  workers.  The  adoption  of  the  red 
ball  of  safety  was  urged  upon  the  International  Conven- 
tion for  the  Prevention  of  Industrial  Accidents  which 
was  held  at  Milan  some  three  years  ago,  and  it  has  been 
accepted  and  put  into  use  by  such  organizations  as  the 


Safety  First — Sanitation — Welfare  163 

American  Iron  &  Steel  Institute,  the  National  Metal 
Trades  Association,  National  Association  of  Manufac- 
turers, as  well  as  by  a  large  number  of  railroads  and 
manufacturing-  concerns  of  one  kind  or  another. 

The  satisfactory  results  of  the  safety  first  campaign  are 
demonstrable  statistically.  Taking  1906  as  a  basis,  this 
being  the  year  of  its  inception,  the  number  of  serious 
or  fatal  accidents  in  1914  was  reduced  40.52^,  not- 
withstanding the  fact  that  the  figures  for  1914  include  a 
number  of  accidents  that  were  classed  as  minor  injuries 
in  1906.     The  table  on  page  164  speaks  for  itself. 

In  eight  years  a  total  of  12,822  men  saved,  by  educa- 
tional work  and  by  the  taking  of  precautions,  from  serious 
injury,  many  of  them  from  death.  Probably  two-thirds 
of  the  number  had  wives  and  children,  and  so  eight  thou- 
sand families  were  saved  from  sorrow,  from  the  loss  of 
or  injury  to  their  heads.  But  this  is  not  all.  The  figures 
represent  the  saving  accomplished  in  the  mines,  mills,  and 
so  on,  of  the  Steel  Corporation  itself.  No  account  can  be 
obtained  of  the  number  of  men  employed  by  other  steel 
companies,  or  in  other  industries,  who,  by  reason  of  the 
example  set  by  the  corporation,  were  saved  from  death 
or  the  loss  of  a  limb.  And  the  safety  campaign  is  yet  in 
its  infancy.  The  men  who  are  devoting  themselves  to  it 
look  forward  to  the  day  when  the  only  accidents  that  shall 
occur  will  be  those  that  may  be  said  truly  to  be  unavoid- 
able— and  the  number  of  men  killed  or  injured  in  industry 
will  have  been  reduced  to  a  minimum. 

A  concrete  example  of  the  results  of  the  safety  pro- 
gram is  afforded  by  comparing  the  figures  for  accidents 
in  the  coal  mining  industry  in  the  United  States  and 
other  countries  with  those  in  the  corporation's  mines. 

DEATHS  PER  MILLION  TONS  PRODUCED 

1912  1913  1914 

Scotland  3.50  3.68  3.17 

South   Wales 6.53  11.53  6.24 

Great  Britain 4.52  4.91  3.81 

United   States 4.29  4.89  4.81 

H.  C.   Frick  Coke  Company 1.88  1.99  1.02 


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s         V. 

Safety  First — Sanitation — Welfare  165 

TONS  OF  COAL  PRODUCED  PER  DEATH 

Scotland                                  285.000  271,722  315,283 

South   Wales 153,000  85,207  160,(J67 

Great  Britain 248,000  203,735  262,736 

United   States .' 233.(KX)  204,685  208,078 

H.  C.  Frick  Coke  Company 531,328  502,695  975,454 

In  the  three  years  shown  the  Frick  company  produced 
about  667,000  tons  of  coal  for  each  man  killed,  the 
United  States  production  per  death  was  approximately 
215,000,  and  that  of  Great  Britain  298,000  tons. 

Has  the  Steel  Corporation  really  gained  from  the 
enormous  expenditures  for  safety  work?  That  it  has 
got  returns  in  the  way  of  loyalty  and  increased  efficiency 
can  hardly  be  doubted,  but  has  there  been  any  tangible 
saving? 

The  economy  in  the  matter  of  compensation  payments 
alone  satisfies  this  point.  Every  injury  prevented 
means  so  much  less  compensation  paid.  A  computa- 
tion made  by  the  Safety  Bureau  recently,  and  covering 
the  three  years  from  1911  to  1913  inclusive,  showed 
that  had  the  same  number  of  accidents  occurred  annu- 
ally as  in  1906  when  the  safety  campaign  was  organized, 
the  cost  to  the  big  company  would  have  been  several 
millions  of  dollars  more  than  was  spent  in  erecting 
safety  appliances  and  for  safety  educational  work  in 
the  period. 

Nor  must  one  fail  to  make  allowances  for  the  gain 
in  production  that  is  derived  from  increased  safety.  In 
the  first  place  every  accident  means  a  more  or  less 
lengthened  stoppage  of  work,  with  a  consequent  loss.  It 
means  the  training  of  a  new  man  to  fill  the  place  vacated 
by  the  injured  worker.  In  fact,  and  this  will  sooner  or 
later  be  realized  by  every  employer,  the  injury  of  a 
workman  is  as  harmful  to  the  employer  as  the  break- 
down of  a  machine.  The  human  machine  is  no  less 
important  than  that  made  of  steel  or  wood. 

It  is  the  first  step  that  counts.  Once  started  on  the 
job  of  saving  the  employees  of  the  corporation  itself 
from  injury  the  ambition  of  the  men  in  charge  of  the 


166        The  United  States  Steel  Corporation 

work  extended  and  reached  out  through  the  steel  trade, 
then  to  other  industries,  and  finally  to  other  countries. 
A  traveler  in  the  United  States  who  keeps  his  eyes  open 
will  see  frequent  evidence  of  the  results  of  this  on  rail- 
roads, and  in  various  manufacturing  establishments, 
and,  as  has  been  told  already,  the  work  is  being  spread 
beyond  the  seas. 

Nor  was  this  all.  The  safety  workers  entered  the 
field  of  welfare  work  and  systematized  what  had  already 
been  done  to  better  the  lot  of  the  worker,  not  only  in 
the  mill,  but  in  his  home  and  community. 

Strictly  speaking  safety  and  everything  else  that 
affects  the  living  conditions  of  labor  is  classifiable  under 
the  head  of  welfare.  But  in  practice  a  distinction  is  to 
be  drawn  between  what  may  be  considered  the  mere 
duty  of  the  employer  to  prevent  needless  accidents — 
incidentally  for  his  own  benefit  financially  in  the  long 
run — and  the  work  that  reaches  out  and  by  bettering 
the  worker's  lot  generally  benefits  his  family  and  the 
community  in  which  he  lives. 

And  it  is  a  peculiar  thing  about  such  work  that  it 
grows  of  its  own  impetus.  Improving  the  lot  of  the  in- 
dividual must  eventually  improve  the  community  condi- 
tions surrounding  him.  It  is  doubtful  if  the  manage- 
ment of  the  corporation,  when  it  outlined  its  propaganda 
for  helping  its  employees  to  lead  happier  and  healthier 
lives  realized  how  far  afield  it  would  be  carried,  how 
many  different  activities  the  work  would  come  to 
include. 

Each  step  accomplished  suggests  another  and  a  big- 
ger. As  the  welfare  campaign  progresses  its  workers 
become  imbued  with  enthusiasm,  make  more  demands 
upon  the  corporation's  finances  to  carry  out  their  ideas. 
And  so  the  welfare  program  has  taken  on  a  broad  scope, 
has  a  wide  horizon,  and  will  have  a  wider  one  as  time 
goes  on. 

Different  subsidiary  companies  handle  details  of  the 
welfare  work  in  various  ways.    Local  conditions  render 


Safety  First — Sanitation — Welfare  167 

this  necessary,  but  the  basic  idea  is  the  same.  What 
might  be  done  in  modern,  built  to  order,  Gary,  might 
be  impossible  of  accomplishment  in  Homestead.  Again, 
the  Tennessee  Coal,  Iron  &  Railroad  Co.,  having  the 
question  of  mixed  color  to  consider,  must  adopt  dififerent 
measures  to  meet  the  peculiar  conditions  with  which  it 
has  to  contend. 

In  some  sections,  for  instance,  community  visitors  are 
appointed  to  investigate  cases  of  destitution  or  illness, 
and  to  instruct  the  wives  of  workmen  in  hygiene,  cook- 
ing, and  the  general  care  of  their  homes  and  families. 
In  others  schools  are  maintained  for  the  same  object. 

A  very  promising  forward  step  was  taken  not  long 
ago  by  the  Oliver  Iron  Mining  Co.,  which  built  at  Ish- 
peming,  Mich.,  a  "rest  house,"  where  the  wives  of  work- 
ers, if  broken  down  in  health,  might  enjoy  a  vacation 
in  healthy  and  congenial  surroundings  without  cost. 

The  modern  educational  methods  of  the  newer  steel 
towns  was  told  in  a  previous  chapter.  But  educational 
work  is  everywhere  considered  one  of  the  most,  if  not 
the  most,  important  of  safety  measures,  and  wherever 
the  Steel  Corporation  establishes  itself,  there  it  either 
establishes  schools  or,  if  schools  already  exist,  endeav- 
ors to  assist  in  the  work  of  education  by  starting  special 
classes  for  adult,  such  as  classes  in  English  for  foreign 
workmen,  and  classes  for  technical  or  even  scientific 
instruction.  In  some  plants  there  are  buildings  entirely 
devoted  to  such  studies. 

All  work  and  no  play  makes  Jack  a  dull  boy.  Recrea- 
tion, the  necessity  for  exercise  of  mind  and  body,  is 
given  an  important  place  in  the  welfare  propaganda. 
In  many  steel  communities  the  corporation  has  erected 
club  houses,  libraries  and  gymnasia,  and  has  provided 
swimming  pools,  and  even  baseball  grounds.  Many  of 
the  mills  have  their  baseball  teams  and  private  grounds 
for  them. 

Work  among  the  children  is  given  a  very  prominent 
place.     In  1910  Taylor  Alderyce,  first  vice-president  of 


168        The  United  States  Steel  Corporation 

the  National  Tube  Co.,  was  struck  with  the  happy 
thought  that  a  small  area  of  waste  land  in  one  of  the 
plants  could  be  given  over  to  the  children  so  that  they 
could  play  in  safety  and  out  of  the  streets.  The  idea 
was  seized  upon  avidly  by  the  officials  of  the  other  com- 
panies and  the  welfare  committee,  and  was  soon  in 
general  use.  There  are  now  128  of  these  playgrounds, 
and  an  average  of  16,619  children  made  use  of  them 
daily  during  1914!  These  playgrounds  are  equipped 
with  swings,  slides,  and  other  devices  dear  to  the  young. 
In  some  cases  they  are  situated  in  the  plant  proper,  in 
others,  where  more  room  is  available,  big  open  spaces 
outside  the  plants  are  devoted  to  the  amusement  of  the 
children.  And  in  every  one  of  the  newer  steel  towns 
one  of  the  first  matters  taken  care  of  has  always  been 
the  location  of  a  suitable  playground  for  the  youth  of 
the  community. 

Welfare  work  in  the  mill  proper  includes  sanitary 
measures  such  as  "comfort  rooms,"  bath  houses,  sani- 
tary drinking  fountains,  electric  fans  at  points  where 
there  is  great  heat,  and  other  measures  of  a  similar 
character.  Broadly  speaking  the  effort  is  to  minimize 
all  the  risks  of  the  industry,  not  only  to  the  safety,  but 
to  the  health  of  the  employee. 

The  H.  C.  Frick  Coke  Co.  encourages  its  employees 
by  prizes,  etc.,  to  cultivate  vegetable  and  flower  gar- 
dens, for  economy  and  beauty.  Out  of  7.477  employees 
of  the  company  having  homes,  92%  cultivated  gardens 
in  1914.  The  vegetable  gardens  numbered  6.633  and 
their  average  value  was  $21.48,  a  total  of  $142,536. 

It  might  be  difficult,  perhaps  impossible,  to  demon- 
strate statistically  that  welfare  work,  as  distinct  from 
safety  work  has  paid ;  that  the  corporation  has  received 
a  tangible  return  for  the  millions  it  spends  yearly  to 
give  its  employees  an  opportunity  to  live  cleaner,  heal- 
thier, happier  and  broader  lives.  Nevertheless,  I  believe 
that  no  work  that  has  been  done  for  this  object  has 
failed  to  give  a  return,  full  measure  and  overflowing. 


Safety  First — Sanitation — Welfare  169 

In  the  end,  all  welfare  work,  whether  it  be  in  the  salva- 
tion of  the  worker  from  accidents,  the  teaching  of  indi- 
vidual or  community  hygiene,  the  care  of  the  sick,  the 
financial  care  of  the  injured,  the  teaching  of  language, 
trades,  sciences,  has  for  its  object  the  making  of  better 
men  and  women,  the  giving  to  the  worker  born  under  un- 
favorable social  conditions  the  opportunity  to  raise  himself 
above  those  conditions.  And  in  the  using  of  this  oppor- 
tunity by  the  worker  the  employer  is  bound  to  benefit. 

But,  every  other  consideration  aside,  the  work  has 
paid  in  the  satisfaction  that  the  management  and  the 
stockholders  of  the  great  industrial  enterprise  feel  in 
it,  in  the  knowledge  that  by  setting  the  lead  in  advanc- 
ing the  interests  of  the  man  w^ho  works  with  his  hands, 
they  have  given  millions  of  men,  not  in  the  corporation 
alone,  but  in  industry  generally — for  the  lead  has  been 
followed — better  working  conditions,  cleaner  homes  and 
communities,  and  better  educational  facilities  for  their 
children.  In  the  satisfaction  of  knowing  that,  by  the 
welfare  work,  better  citizens  are  being  made,  and  finally 
in  the  knowledge  that  the  work  has  helped  to  a  great 
extent  to  bridge  the  chasm  that  separates  capital  from 
labor. 

Sooner  or  later  the  time  must  come  when  it  will  be 
recognized  that  what  is  known  as  "welfare  work"  is  a 
simple  duty  that  industry  owes  to  labor.  If  it  is  not  freely 
accorded,  the  working  man  will  eventually  demand  that 
his  work  and  his  home  be  surrounded  with  those  things, 
tangible  and  intangible,  that  make  for  decent  citizenship, 
for  self-respecting  manhood. 

By  following  the  lead  of  the  United  States  Steel  Cor- 
poration in  recognizing  without  compulsion  these  rights, 
industry  as  a  whole  will  go  a  very  far  way  towards 
smoothing  away  the  differences  that  now  exist  between 
capital  and  labor.  This  is  one  of  the  things  it  must  ofTer 
as  an  evidence  of  the  claim  it  has  so  often  made  that  the 
real  interests  of  the  man  who  works  with  his  hands  and 


ITO        The  United  States  Steel  Corporation 

of  those  for  whom  he  gives  his  strength  and  his  energy 
are  identical. 

Welfare  work  is  the  humanizing  of  industry.  By  its 
aid  the  employer  can  do  much  towards  eliminating  labor 
unrest  and  bringing  about  an  era  of  good  will  between 
employer  and  employed. 


CHAPTER  XI 
QUESTIONS  OF  POLICY. 

WHEN  Bertrand  du  Guesclin,  the  great  French 
hero  of  the  Hundred  Years  War,  was  captured 
by  the  British  and  brought  to  England  a  prisoner 
and  his  ransom  set  at  one  million  crowns,  a  princely 
sum  in  those  early  days,  more  than  half  the  amount  was 
immediately  subscribed  by  his  natural  enemies,  the 
English  who  had  fought  against  him.  It  was  intended 
as  a  g^eat  tribute  to  Bertrand's  character,  and  it  is  un- 
likely that  another  such  instance  can  be  found  in  history. 

And  no  better  proof  can  be  offered  of  the  essential 
fairness  of  the  U.  S.  Steel  Corporation's  methods  of 
doing  business  than  the  fact  that,  in  its  hour  of  trial, 
when  the  Government  of  the  United  States  was  seeking 
to  disintegrate  it,  its  competitors,  the  men  who  met  and 
fought  it  for  industrial  success,  came  forward  practic- 
ally in  a  body  to  its  defense  and  testified  that  its  deal- 
ings with  them  and  with  the  public  had  always  been  fair 
and  honorable. 

The  organization  of  the  U.  S.  Steel  Corporation 
marked  the  end  of  an  era  in  the  steel  trade,  and  was  also 
the  beginning  of  a  new  epoch  in  industrial  history. 
This  era  was  that  wherein  each  man's  hand  was  against 
his  brother.  When  the  principle  on  which  each  steel 
maker  worked,  to  paraphrase  a  well  known  piece  of 
advice,  was  "Sell  steel,  honest  if  you  can,  but  sell  steel." 

It  was  the  beginning  of  a  period  of  square  and  open 
dealing.  The  management  of  the  big  company  had  the 
foresight  to  realize  that  a  new  day  was  dawning,  and 
to  help  to  make  the  morning  of  that  day  brighter,  it 
adopted  the  policy  of  candid  treatment  of  competitors, 
the  principle  of  co-operation.  It  sought  to  make  friends 
rather  than  enemies  of  its  competitors.  The  task  was 
a  hard  one,  for  the  trade  had  too  long  been  used  to  fear 


173        The  United  States  Steel  Corporation 

gift-bringing  Greeks,  to  view  with  suspicion  every  un- 
hostile  action  of  a  competitor,  to  believe  that  business 
could  possibly  be  done  on  the  higher  plane  adopted  by 
the  new  consolidation.  Live  and  let  live  was  then  un- 
known in  business.  But  gradually  these  fears  were 
overcome,  and  the  steel  trade  changed,  or  its  methods 
did. 

The  Steel  Corporation  was  an  evolution.  It  was  the 
natural  result  of  the  integration  in  industry  that  had 
been  going  on  for  years.  In  it  was  concentrated  into  a 
single  organization  all  the  processes  of  steel  making 
from  ore  mining  to  the  most  highly  finished  products 
of  all  kinds,  including  transportation.  The  evolution, 
however,  was  not  merely  a  physical  one.  The  big  com- 
pany stood  for  the  development  along  lines  of  modem 
thought,  of  business  methods  and  practices. 

It  was  a  fortunate  thing  that  the  corporation,  from  its 
organization,  had  as  its  chief  executive  officer  a  man 
far-sighted  enough  to  see  that  so  modern  and  especially 
so  vast  an  enterprise  must  abandon  unfair  practices, 
and  methods  that,  even  if  fair  legally,  were  hardly  so 
morally,  if  it  would  live  itself;  a  man  big  enough  to 
realize  that  with  corporations  as  well  as  men  it  was 
"glorious  to  have  a  giant's  strength,  but  tyrannous  to 
use  it  like  a  giant." 

Indeed,  Judge  Gary  found  it  no  easy  task  to  persuade 
some  of  his  colleagues  on  the  board  of  the  big  corpora- 
tion to  consent  to  the  course  he  advised  in  dealing  with 
competitors,  a  course  which,  incidentally,  he  himself 
follows  in  his  dealings  with  individuals — if  there  is  any 
question  of  what  is  fair  and  just  give  the  other  fellow 
the  advantage. 

And  his  advice  was  the  harder  to  follow  in  that  the 
laws  of  the  United  States  made  it  exceedingly  difficult 
to  steer  a  middle  course  between  the  shallows  they 
themselves  create.  The  corporation,  to  obey  the  law, 
was  bound  to  engage  in  active  and  sustained  competi- 
tion with  other  steel  makers,  and  at  the  same  time  was 


Questions  of  Policy  173 

bound  to  refrain  from  any  act  which  might  be  inter- 
preted as  an  attempt  to  take  advantage  of  its  great  size 
and  resources  to  overdo  this  competition. 

In  its  answer  to  the  Government  suit  the  corporation 
claimed  that,  far  from  restraining  competition,  it  had 
fostered  it,  and  many  of  its  competitors  themselves 
swore  to  the  truth  of  this  claim.  But  it  remained  for 
the  court,  in  summing  up,  to  give  facts  and  figures  of 
the  growth  of  competitors  which  fully  and  completely 
substantiated  the  claim.  The  court  declared  that  the 
proofs  showed  that  the  corporation's  business  from  1901 
to  1911  had  increased  over  40%,  but  that  in  about  the 
same  time  the  Bethlehem  Steel  Co.  had  shown  a  gain 
of  3,780%  in  business,  the  La  Belle  Iron  Works  of 
463%,  the  Jones  &  Laughlin  Steel  Co.  of  206%,  the 
Cambria  Steel  Co.  of  155%,  the  Colorado  Fuel  &  Iron 
Co.  of  153%,  the  Republic  Iron  &  Steel  Co.  of  91%, 
and  the  Lackawanna  Steel  Co.  of  63%,  to  say  nothing 
of  the  rise  and  expansion  of  entirely  new  companies 
during  the  same  period. 

For  many  years,  ever  since  the  period  of  consolida- 
tion in  manufacturing  and  other  industries  began,  big 
business  has  been  viewed  with  suspicion  and  something 
of  hatred  by  the  mass  of  the  people — and  by  no  means 
without  cause  in  many  instances.  There  is  no  question 
but  that  the  powers  that  controlled  more  than  one  great 
industry  used  their  resources  to  crush  their  competitors 
and  even  used  their  money  and  influence  for  political 
purposes.  It  does  not  require  any  argument  to  convince 
the  unprejudiced  mind  that  the  eflfects  of  such  acts  were 
inimical  to  the  good  of  the  nation,  and  it  was  perhaps 
natural  that  the  stigma  that  attached  to  some  for  this 
cause  was  used  by  demagogues  and  others,  often  sincere 
enough,  against  all  big  business,  and  as  an  aid  to  them- 
selves politically.  In  short,  "smash  the  trusts,"  became 
the  great  vote  catching  slogan. 

No  wonder,  then,  that  the  Steel  Corporation,  the 
largest  and  most  powerful  of  all  so  called  trusts,  was  a 


174        The  United  States  Steel  Corporation 

shining  mark  for  such  attacks.  No  wonder  that  the 
man  in  the  street,  looking  to  his  leaders  for  guidance  in 
such  matters,  was  easily  persuaded  that  the  giant  com- 
pany was  necessarily  a  menace  to  the  body  politic. 

Apparently  this  it  was  that  Judge  Gary  foresaw  when 
he  insisted  that  the  corporation  at  whose  helm  he  stood 
must  so  conduct  itself  in  all  dealings  with  its  competi- 
tors and  with  the  public  that  it  could  at  any  time  prove 
that  its  hands  were  clean;  that  it  used  its  power  not 
destructively,  but  constructively,  for  the  good  of  all 
aflfected  by  its  actions— and  this  means  the  good  of  the 
whole  people. 

The  very  life  of  the  corporation  depended  upon  this. 
So  Judge  Gary  evidently  saw.  And  time  has  proven  the 
accuracy  of  his  judgment.  It  is  safe  to  say  that,  had 
the  corporation  misused  its  power  it  would  have  been 
picked  out  many  years  before  it  was  for  legal  attack, 
and  the  attack  would  have  been  successful.  The  vast 
weight  of  public  opinion,  thrown  in  its  favor  in  the  suit 
recently  decided  in  the  lower  court,  would  have  been 
massed  against  it,  and  the  suit  itself,  so  far  eminently 
satisfactory  to  the  corporation  management  and  the 
stockholders,  would  have  been  instituted  earlier.  The 
corporation  would  not  have  been  in  existence  to-day. 

To  the  lay  mind  it  is  strange  that  the  so-called  Gary 
Dinners,  the  principal  example  of  the  corporation's  atti- 
tude toward  its  competitors,  should  have  been  criticized 
by  the  courts.  The  criticism,  however,  appears  to  have 
been  based  largely  upon  a  technicality,  as  the  court 
practically  admitted  that  there  was  no  intent  on  the 
part  of  Judge  Gary  or  his  associates  to  restrain  trade 
at  these  functions.  In  fact,  the  cause  of  complaint 
seems  rather  to  have  been  certain  meetings  held  in  Pitts- 
burg that  grew  out  of  the  dinners,  meetings  at  which  the 
Judge  was  not  present,  than  the  dinners  themselves  and 
what  occurred  there. 

In  its  opinion  the  court  said  on  this  subject: 

"We  think  it  likely  that  if  this  first  meeting  (the  first 


Questions  of  Policy  176 

of  the  Gary  Dinners)  had  not  been  followed  by  others 
and  by  the  appointment  of  committees  to  continue  the 
association  (loose  as  it  was),  that  resulted  from  that 
meeting^,  no  complaint  would  have  been  heard  from  the 
Government." 

And  again :  "It  is  only  fair  to  add  that  in  our  opinion 
the  participants  in  this  movement  did  not  intend  to  act 
illegally.  No  doubt  they  intended  to  exercise  their  full 
legal  rights ;  but,  of  course,  such  exercise  could  not  be 
wrong,  and  they  believed  they  had  succeeded  in  keeping 
within  the  proper  limits.  For  the  reasons  given,  we 
think  they  were  mistaken,  but  we  aquit  them  of  tricki- 
ness  or  attempted  evasion." 

And  the  minority  opinion :  "The  first  Gary  Dinner 
was  given  on  November  20th,  1907,  to  meet  an  unques- 
tioned exigency  arising  out  of  the  panic  then  existing. 
*  *  *  The  dinner  was  given  in  order  to  devise  ways 
and  means  to  prevent  calamity  to  the  (steel)  industry. 
Ways  and  means  were  found  which,  no  doubt,  con- 
tributed greatly  in  preventing  disaster  not  alone  to  the 
producers  of  steel,  but  also  to  those  intermediate  con- 
sumers who  were  carrying  large  and  costly  supplies. 
The  ways  and  means  consisted  then  of  nothing  more 
than  the  urgent  request  of  a  strong  man,  that  in  the 
stress  of  panic  all  should  keep  their  heads,  and  avoid 
the  consequence  of  reckless  cutting  of  prices.  In  this 
the  others  acquiesced,  and  in  the  light  of  the  emergency 
then  existing  and  the  disaster  averted,  I  am  of  opinion 
that  the  purpose  and  conduct  of  those  who  participated 
in  the  first  Gary  Dinner  were  not  unlawful,  improper  or 
questionable." 

The  Gary  Dinners !  Feasts  that  will  rank  in  the  busi- 
ness history  of  the  United  States  as  did  the  feasts  of 
Lucullus  in  epicurianism  or  Cleopatra's  dinner  to  An- 
thony in  romance.  Occasions  where  the  heads  of  the 
steel  companies  of  the  United  States  gathered  at  the  fes- 
tive board  in  amity  and  good  will  to  consider  and  dis- 
cuss a  situation  that  threatened  not  themselves  alone. 


IT 6        The  United  States  Steel  Corporation 

but  the  country  at  large.  Where  these  titans  of  indus- 
try, only  a  few  years  before  mortal  enemies,  met  as 
friends  and  openly  and  without  fear  discussed  with  one 
another  the  intimate  details  of  their  businesses. 

It  was  right  after  the  first  great  shock  of  the  panic 
of  1907.  The  country  was  still  trembling  from  the 
effects  of  the  great  financial  disaster,  and  no  man  knew 
surely  whether  the  worst  had  been  passed,  whether 
financial  and  industrial  chaos  had  been  staved  off,  or 
not.  The  storm  clouds  had  not  passed  away,  and  the 
men  engaged  in  the  steel  and  iron  business,  truly  called 
the  barometer  of  trade,  having  on  more  than  one  pre- 
vious occasion — many  of  them  at  least — seen  a  similar 
situation  lead  to  years  of  distress  and  of  prolonged  in- 
dustrial depression  and  unemployment,  in  a  word  to 
what  the  trade  knew  as  soup-house  days,  had  especial 
reason  to  be  fearful  of  what  the  immediate  future  held 
for  them  and  the  concerns  with  which  they  were  asso- 
ciated. 

Nor  were  these  panic  fears  confined  to  the  steel  giants 
alone.  In  fact,  the  smaller  manufacturers,  the  jobbers 
and  the  retailers,  having  generally  smaller  resources, 
were  in  much  worse  case.  Most  of  these  latter  were 
piled  up  with  heavy  stocks  of  steel  which  they  had 
purchased  during  the  boom  in  the  earher  part  of  the 
year,  and  a  sudden  drop  in  steel  prices  would  have 
meant  not  alone  the  wiping  out  of  all  hope  of  profit,  but 
certain  bankruptcy  for  a  large  percentage  of  them. 

To  the  head  of  the  biggest  of  the  steel  producers, 
then,  all  eye?  were  turned.  Judge  Gary  was  deluged 
with  letters  from  all  quarters  asking  him  to  use  all  his 
power  and  influence  to  help  weather  the  financial  tem- 
pest. Naturally,  it  was  very  much  to  the  interest  of 
the  Steel  Corporation,  as  well  as  of  other  steel  manu- 
facturers, to  do  all  that  was  possible  to  prevent  the  fail- 
ure of  the  steel  middlemen.  Not  only  would  bankrupt- 
cies have  meant  the  drastic  cutting  down  of  accounts 
due,  perhaps  their  total  loss  in  some  cases,  but  each  fail- 


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Questions  of  Policy  177 

lire  meant  the  loss  of  a  customer.  These  things  the 
steel  men  knew  from  past  experience. 

One  thing  above  all  others  seemed  to  be  needed,  the 
great  essential  in  panic  of  every  kind — that  those  con- 
cerned should  keep  their  heads,  should  remain  cool  and 
face  the  danger  steadily,  and  with  the  strength  of  unity. 
A  leader  was  needed,  and  a  strong  one,  and  Judge  Gary, 
head  of  the  Steel  Corporation,  was  looked  upon  to 
assume  the  post,  which  he  did.  To  Judge  Gary  it 
seemed  that  the  first  and  essential  step  was  to  bring  the 
steel  producers  together  and  to  explain  the  situation  to 
them,  pointing  out  that  the  only  hope  of  salvation  was 
in  coolness  and  unity. 

So  he  wrote  a  letter  to  practically  all  the  large  steel 
producers  inviting  them  to  a  dinner  at  the  Waldorf- 
Astoria,  in  New  York,  on  November  20,  1907.  The  re- 
sponse was  very  nearly  unanimous,  and  on  the  evening 
of  that  day  there  gathered  around  the  table  in  the  ball 
room  of  that  hotel  the  representatives  of  concerns  pro- 
ducing more  than  90  per  cent  of  all  the  steel  made  in 
America,  as  well  as  the  representatives  of  some  Cana- 
dian companies. 

At  the  proper  time  the  host  explained  the  object  of 
the  meeting.  What  he  said  can  best  be  related  in  his 
own  words : 

"I  stated  the  purpose  and  object  of  the  meeting  were 
if  possible  to  prevent  the  demoralization  of  business. 
I  stated  that  the  first  object  of  the  meeting  was  to  se- 
cure a  better  acquaintance  with  each  other,  and  come 
into  close  contact  in  order  to  know  one  another,  hoping 
that  we  might  deal  with  and  towards  one  another  as 
gentlemen  and  not  as  enemies.  That  the  purpose  was, 
if  possible,  to  prevent  demoralization  of  business,  to 
secure  as  far  as  practicable  stability  of  business  condi- 
tions, as  opposed  to  wide  and  sudden  fluctuations,  to 
prevent,  if  possible,  failures  on  the  part  of  our  custom- 
ers, and  to  comply  with  their  wishes  in  every  respect, 
to  prevent,  if  we  could,  a  long  continuance  of  the  panic. 


178        The  United  States  Steel  Corporation 

which  meant  failures  to  a  great  many  people  and  manu- 
facturers themselves,  because  of  their  debts  at  the  banks 
or  because  of  their  commitments  for  extensions,  and  to 
customers  because  of  the  large  stocks  they  had  on  hand, 
the  sudden  change  in  the  prices  of  which  might  be  very 
damaging,  and  so  far  as  we  properly  could,  to  maintain, 
or  to  assist  in  maintaining  business  conditions  generally, 
the  opposite  of  which  should  be  deplored. 

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"I  Stated  distinctly  *  *  *  at  that  time  that,  as 
they  all  understood,  we  could  not  make  any  agreement, 
express  or  implied,  directly  or  indirectly,  which  bound 
up  to  maintain  prices  or  restrict  territory  or  output ;  it 
must  leave  us  free  to  do  as  we  pleased,  and  must  rely 
upon  a  disposition  of  all  others  to  do  what  they  consid- 
ered fair  and  right,  and  for  the  best  interests,  not  only 
of  themselves,  but  all  others  who  had  any  interest  in 
that  or  any  other  work.    I  made  that  perfectly  plain." 

Judge  Gary's  remarks  made  a  profound  impression, 
and  his  hearers  unanimously  agreed  to  adopt  the  means 
he  suggested  for  obviating  the  worst  of  the  panic  dan- 
gers. Resolutions  creating  a  general  and  several  sub- 
committees were  made  and  passed  and  the  meeting  ad- 
journed, subject  to  call. 

Following  this  dinner  similar  sessions  were  held  in 
January,  April,  May  and  December  of  1908.  The  De- 
cember feast  was  the  last  of  the  Gary  dinners  proper, 
although  some  meetings  were  held  subsequent  to  that 
time. 

Were  prices  fixed  at  the  Gary  dinners?  Let  us  settle 
this  point,  as  it  was  one  of  the  chief  things  charged 
against  the  corporation  in  the  Government  suit,  and  is 
the  question  on  which  the  ethical  morality  of  the  hold- 
ing of  these  dinners  rests. 

At  the  first  of  the  Gary  Dinners  the  host  explained 
that  the  fixing  of  prices  was  forbidden  by  the  laws  con- 
cerning restraint  of  trade,  and  that  nothing  could  or 
should  be  done  which  would  not  conform  in  all  ways 


Questions  of  Policy  179 

to  the  law.  Yet  it  is  plain  that  the  effect  of  these  din- 
ners was  to  stabilize  price  for  steel.  It  does  not  appear 
that  there  was  any  definite  agreement  between  the  dif- 
ferent interests  represented  as  to  what  question  they 
should  ask  for  their  products,  but  it  is  obvious  that  the 
mere  statement,  between  gentlemen,  that  one  intended  to 
adopt  a  certain  course  in  regard  to  prices  tended  to  in- 
fluence his  colleagues  to  follow  a  similar  course.  It 
must  be  suggested,  nevertheless,  that  there  was  never 
any  question  of  restraint,  as  all  were  free  to  act  as  they 
saw  fit,  and  it  seems  that  on  some  occasions  there  was 
not  even  absolute  agreement.  At  the  worst  the  partici- 
pants at  the  Gary  Dinners  stretched  the  interpretation 
of  the  law  a  little  to  do  a  great  right— the  financial  sal- 
vation of  the  steel  industry,  which  remember,  was  and 
still  is,  the  leading  industry  of  the  country. 

What  was  the  result  of  the  Gary  Dinners.  Simply 
that,  whereas  in  previous  panics  gravestones  of  steel 
producers  and  middlemen  had  been  numerous,  not  one 
important  failure  in  the  trade  was  recorded  as  a  result 
of  the  1907  panic.  There  is  no  question  that  this  was 
due  to  the  leadership  of  the  head  of  the  Steel  Corpora- 
tion. 

Early  in  1909 — on  February  18 — another  meeting  of 
the  steel  leaders  was  held,  this  time  taking  the  shape  of 
a  luncheon.  This  occasion,  in  a  sense,  was  the  formal 
breaking  up  of  the  Gary  Dinner  program,  as  it  was 
then  that  Judge  Gary,  satisfied  that  several  of  his  com- 
petitors had  departed  from  their  intention  to  maintain 
for  themselves  respectively  stability  of  business  and 
prices,  announced  that  the  Steel  Corporation  would  in 
future  "go  it  alone."  That  it  would  get  what  business 
it  could  and  would  not  divulge  its  affairs  to  competitors. 
This  was  followed  by  the  so-called  open  market  in  steel 
which  sent  prices  down  to  a  very  low  level. 

And  here  might  be  inserted  an  interesting  fact.  Or- 
ders were  sent  out  to  the  various  sales  managers  of  the 


180        The  United  States  Steel  Corporation 

different  corporation  subsidiaries  that  they  were  to  go 
after  business  and  get  all  they  could,  orders  particu- 
larly welcome  to  those  who  had  longed  for  the  flesh  pots 
of  Egypt,  the  old  Carnegie  methods,  and  who  believed 
that  the  big  company  could  force  its  competitors  to  the 
wall  by  such  a  course.  A  vigorous  campaign  for  orders 
followed,  both  on  the  part  of  the  corporation  subsid- 
iaries and  the  independent  companies,  but  the  result 
went  largely  to  prove  that  the  big  company  did  not 
have  the  power  which  its  enemies  claimed  it  had,  of 
crushing  competition.  In  the  words  of  Colonel  H.  P. 
Bope,  vice-president  and  sales  manager  of  the  Carnegie 
Steel  Co.,  and  a  graduate  of  the  Carnegie  steel  school, 
the  result  of  the  1909  sales  campaign  was  a  disappoint- 
ment to  him,  the  corporation  failed  to  cut  into  its  com- 
petitors' business,  losing  a  little  to  them  in  some  lines 
as  a  matter  of  fact. 

There  was  yet  another  dinner  to  come.  On  October 
15,  1909,  the  steel  makers  of  the  United  States  and  Can- 
ada joined  together  to  honor  the  man  who  had  first 
called  them  together  during  the  stirring  and  dangerous 
panic  times  two  years  previous.  The  leader  of  the 
movement  was  Charles  M.  Schwab  and  many  of  the 
most  prominent  men  in  the  trade  made  speeches  in 
honor  of  the  guest  of  the  evening.  It  was,  as  Mr. 
Schwab  said  "the  first  time  when  the  heads  of  all  the 
big  concerns  in  the  United  States  and  Canada  had  gath- 
ered to  do  honor  to  a  man  who  has  introduced  a  new 
and  successful  principle  in  our  great  industry." 

T.  J.  Drummond,  vice-president  of  the  Algomah  Steel 
Corporation,  in  his  address  defined  this  principle  as  the 
doctrine  that  "what  is  good  for  my  competitors  is  good 
for  me." 

Referring  to  the  Judge  Gary  leadership  in  the  trying 
times  the  trade  had  passed  through  Mr.  Drummond 
said :  "Always  the  voice  of  our  leader  rang  strong  and 
clear,  'Steady,  boys,  and  play  the  game.'  And  by  the 
Lord,  you  played  and  played  it  fair." 


Questions  of  Policy  181 

A  beautiful  cup  of  gold  was  presented  to  the  Judge 
by  his  steel  colleagues  at  this,  the  very  last  of  the  Gary 
dinners. 

The  question  of  price  restraint,  or  the  corporation's 
influence  in  maintaining  or  depressing  the  price  of  steel 
is  suggested  naturally  by  that  of  price  fixing  at  the  Gary 
Dinners.  This  question  is  one  seriously  affecting  the 
corporation's  existence, — being  interwoven  closely  in 
that  of  the  treatment  of  competitors.  Getting  down  to 
basic  facts  the  principal  objection  of  the  man  in  the 
street  to  trusts  or  monopolies  is  that  the  securing  of 
unchallengeable  power  by  one  concern  in  any  industry 
is  likely  to  lead  to  higher  prices  or  lower  quality,  either 
of  which  would  swell  the  profits  of  the  monopolistic  cor- 
poration and  would  harm  the  public.  It  is  therefore 
important  to  consider  the  corporation's  general  policy  in 
the  matter  of  prices. 

During  the  steel  dissolution  suit  a  number  of  com- 
petitors and  of  steel  consumers  testified  that  the  big 
company  had  always  endeavored  to  "steady"  prices,  a 
fact  evidenced  by  the  very  holding  of  the  celebrated  din- 
ners. That  it  had  always  been  the  last  to  advance,  and 
was  equally  loath  to  reduce.  They  agreed,  however, 
that  the  steadying  influence  was  brought  to  bear,  not 
to  keep  prices  at  levels  where  enormous  profits  could 
be  reaped,  but  rather  at  such  quotations  as  gave  the 
manufacturer  only  a  fair  and  equable  profit  on  his  in- 
vestment, evidenced  by  the  fact  that  the  corporation, 
unlike  many  of  its  competitors,  fixed  an  approximate 
high-water  mark  for  prices  in  boom  times,  and  made 
no  attempt,  in  fact  refused  to  sell  above  these,  although 
they  were  much  lower,  to  use  a  phrase  made  familiar 
in  the  old  days  of  railroading  "than  the  traffic  could 
bear."  These  witnesses  also  asserted  that  the  tendency 
of  prices  since  the  birth  of  the  Steel  Corporation  had 
been  downward  and  finally  that  the  quality  of  the 
product,  and  these  were  men  qualified  to  know  whereof 
they  spoke,  had  been  appreciably  bettered. 


183        The  United  States  Steel  Corporation 

In  its  decision  the  U.  S.  Circuit  Court  of  Appeals, 
which  a  few  months  ago  absolved  the  corporation  from 
the  charge  of  attempted  monopoly  in  restraint  of  trade, 
pronounced  itself  as  satisfied  that  the  corporation  did 
not  have  the  power,  even  if  it  wanted  to,  to  force  prices 
to  an  abnormal  level.  The  court  found  it  proven  that 
steel  prices  could  not  be  advanced  arbitrarily  above  the 
level  quoted  by  any  important  competitor  in  the  field, 
and  that  the  so-called  independent  companies  were 
themselves  too  large,  and  too  powerful  to  be  forced  to 
the  wall  by  the  methods  that  have  been  employed  by 
some  "trusts"  to  secure  monopoly. 

Regarding  the  question  of  the  course  or  tendency  of 
prices  the  testimony  of  Professor  Jeremiah  Jenks  is  par- 
ticularly illuminating.  Professor  Jenks,  whose  reputa- 
tion as  an  economist  is  world-wide,  verified  and  ex- 
plained charts  previously  put  in  evidence  showing  that  the 
purchasing  power  of  steel,  the  real  price  obtained  by 
what  is  known  as  the  index  system  recognized  by  eco- 
nomists at  the  best  test  of  price  fluctuations,  had  de- 
creased decidedly  between  the  date  of  the  organization 
of  the  corporation  and  the  time  of  the  steel  suit,  as  com- 
pared with  a  similar  period  before  the  birth  of  the  cor- 
poration. The  same  table  showed,  that  apart  from  the 
economic  test  and  merely  on  the  basis  of  actual  prices 
received,  the  average  prices  of  steel  and  iron  in  the  same 
period  had  declined  slightly  between  the  same  periods. 

From  all  of  this  evidence  the  observer  must  conclude 
that  the  policy  of  the  Steel  Corporation  has  not  been 
to  inflate  prices  or  to  depreciate  quality,  and  that  it  has 
been  its  endeavor  to  give  the  consumer  the  best  steel 
possible  for  the  smallest  amount  of  money  compatible 
with  decent  profits.  Incidentally  the  lower  prices  of 
steel  shown  by  Professor  Jenks'  charts  were  made  in  the 
face  of  advancing  wages  amounting  altogether  to  over 
27%.  And  labor  forms  the  most  important  item  of  ex- 
pense in  steel  making.  The  chart  on  opposite  page,  a 
copy  of  one  of  those  testified  to  by  Professor  Jenks,  is 
illuminating  and  needs  no  explanation. 


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184        The  United  States  Steel  Corporation 

Important  among  the  policies  of  the  corporation,  in 
its  dealings  with  the  pubhc,  has  always  been  publicity. 
The  organization  of  the  big  company  was  marked  by 
open  dealing,  all  details  of  the  proposed  merger  being 
published  widespread  before  the  deal  was  carried 
through.  And  ever  since  the  corporation  began  its  exist- 
ence the  policy  of  keeping  the  public  and  its  stockhold- 
ers informed  as  to  its  actions  and  business  has  been 
adhered  to.  The  results  of  the  Gary  Dinners  were 
promptly  given  to  the  public  press ;  and  there  is  testi- 
mony in  the  record  in  the  Government  case  that  the 
Department  of  Justice  of  Washington  was  always  kept 
fully  informed.  Moreover  no  complaint  was  ever  made 
by  any  one  of  the  "Gary  Dinners"  until  the  Stanley 
Committee  intimated  an  illegality,  after  which  it  has 
never  been  claimed  there  was  any  such  dinner  or  meet- 
ing. 

Almost  since  the  date  of  incorporation  it  has  been  the 
custom  to  issue  quarterly  a  report  of  earnings  showing 
the  results  of  the  operations  of  the  three  months  cov- 
ered. These  reports  are  issued  on  the  last  Tuesday  of 
the  month  following  the  quarter  covered  in  the  report. 
On  the  tenth  of  each  month  a  statement  of  the  unfilled 
tonnage  on  the  corporation's  books  is  issued  from  the 
head  office,  and  in  other  ways  the  stockholders  are  kept 
informed  as  to  what  is  going  on  in  their  company. 

Annual  meetings  of  the  Steel  stockholders  form  a  de- 
cided contrast  to  those  of  many  other  companies.  One  is 
accustomed  to  look  upon  the  annual  meetings  of  cor- 
porations as  mere  formalities  attended  by  a  few  officials 
with  perhaps  a  lone  stockholder  not  holding  office ;  and 
reticence  In  discussing  the  company's  business  or  poli- 
cies Is  the  general  thing.  But  the  Steel  meetings  are 
always  well  attended  and  stockholders  are  encouraged 
to  discuss  fully  the  aflfairs  of  their  company,  and  to  criti- 
cize to  their  hearts'  content.  Chairman  Gary  Is  ready 
and  willing  to  explain  at  length  on  any  issue  raised,  and 


Questions  of  Policy  185 

the  whole  effect  of  these  meetings  is  one  of  openness, 
of  candor. 

How  ready  the  management  of  the  big  company  is 
to  meet  criticism  halfway  is  illustrated  by  the  events  at 
the  annual  meeting  in  1911  when  a  stockholder  moved 
that  a  committee  be  appointed  to  investigate  the  condi- 
tion of  the  steel  workers  in  the  corporation's  mills  and 
to  report  thereon,  suggesting  such  remedies  for  evils 
they  might  find  as  seemed  wise.  The  mover  particu- 
larly criticized  the  twelve-hour  day  and  the  ^even-day-a- 
week  schedule  of  labor.  It  was  questionable  whether 
the  mass  of  stockholders  present,  having  absolute  con- 
fidence in  the  desire  of  Judge  Gary  to  give  at  all  times 
the  fairest  possible  treatment  to  the  worker,  would  have 
carried  such  a  motion,  but  Judge  Gary  himself,  holding 
proxies  for  the  majority  of  the  stock,  voted  all  this  stock 
in  favor  of  an  investigation,  and  a  committee  was  ap- 
pointed. Thus  did  the  management  of  the  corporation 
give  proof  of  its  readiness  to  face  investigation  and  to 
answer  fully  and  satisfactorily  any  honest  criticism,  just 
or  unjust. 

The  attitude  of  the  corporation's  management  in  the 
matter  of  publicity,  it  seems  to  me,  is  simnly  that  the 
company's  vast  size  and  the  number  of  its  stockholders, 
as  well  as  the  army  of  men  it  employs  and  its  influence 
upon  industrial  conditions  generally,  render  it  in  a  sense 
a  public  institution,  one  in  which  there  is  an  enormous 
amount  of  warranted  public  interest,  and  that  this  in- 
terest should  be  satisfied.  That  so  great  a  company 
must  work  in  the  open,  all  its  actions  being  able  to  bear 
the  full  glare  of  daylight. 

Up  to  the  time  of  the  corporation's  organization  pub- 
licity on  the  part  of  big  industrial  enterprises  was  almost 
unknown.  Certainly  steel  makers  did  not  show  any 
desire  to  take  the  public,  or  even  the  small  stockholder, 
into  their  confidence  in  regard  to  details  of  their  busi- 
ness. The  immense  profits  made  by  the  Carnegie  com- 
pany were  not  revealed  until  the  Carnegie-Frick  quar- 


18 G        The  United  States  Steel  Corporation 

rel  caused  their  revelation.  But  all  this  has  been 
changed  and  the  necessity  for  full  reports  to  stock- 
holders and  to  the  public  at  large  is  recognized  by  the 
corporations  themselves.  Steel  companies,  in  particu- 
lar, give  detailed  information  of  their  earnings,  opera- 
tions, etc.,  at  least  once  a  year,  and  in  some  cases  every 
quarter.  And  this  is  doubtless  due  to  the  example  of 
the  corporation. 

Sooner  or  later  all  big  business  must  fall  into  line  in 
the  matter  of  publicity.  For  the  leaders  of  business 
thought  are  coming  to  recognize  that  secrecy  breeds 
suspicion  and  enmity,  w^hile  openness  makes  friends. 
And  they  will  all  follow — as  many  have  already  done — 
the  example  of  the  Steel  Corporation  of  doing  business 
in  the  full  glare  of  daylight. 


CHAPTER  XII 
INVESTIGATIONS  AND  THE  DISSOLUTION  SUIT. 

AN  immensity  from  its  conception,  an  undertaking 
so  vast  that  its  actions  and  policies,  good  or  ill, 
reflected  their  results  for  the  industrial  weal  or 
woe,  not  of  a  single  community  but  of  the  whole  Ameri- 
can people;  conceived  and  born,  further,  at  a  period 
when  the  thoughts  of  the  nation  were  directed  toward 
the  menace  that  was  believed  to  exist  in  trusts  against 
the  body  politic  and  when  politicians  and  economists 
were  bending  their  energies  towards  a  study  of  the 
question  of  big  business,  it  was  but  natural  that  investi- 
gations of  one  kind  or  another,  but  all  directed  towards 
the  one  end  of  finding  out  whether  the  big  company's 
existence  was  a  danger  to  the  country  or  not,  should 
have  played  an  important  part  in  the  history  of  the 
United  States  Steel  Corporation. 

Perhaps  no  other  organization  has  enjoyed  or  been 
subjected  to  so  much — and  generally  such  unconsidered 
— criticism  as  has  the  Steel  Corporation.  Even  the 
Standard  Oil  and  the  American  Tobacco  companies, 
big  and  prominent  as  they  were  and  as  much  as  they 
have  been  attacked  for  their  methods  of  eliminating 
competition,  have  failed  to  strike  the  public  imagina- 
tion as  forcibly  as  the  so-called  Steel  Trust.  There 
were  two  main  reasons  for  this.  To  the  mind  of  the 
student  of  economics  the  activities  of  the  Steel  Cor- 
poration bore  more  importance  to  the  public  welfare 
because  of  the  part  that  steel  plays  in  making  or  un- 
making the  prosperity  of  the  country,  the  importance 
of  iron  as  one  of  the  resources  of  the  nation.  The  steel 
trade  is  the  industrial  barometer  of  the  country  and 


188        The  United  States  Steel  Corporation 

this  is  because  steel  enters  into  almost  every  line  of 
activity.  So  far  as  the  public  was  concerned  the  very 
size  of  the  corporation  constituted  its  weakness.  Its 
billion  dollar  capitalization  captivated  the  imagination, 
compelled  attention.  What  men  do  not  understand  they 
are  apt  to  fear,  and  how  many  can  understand  the  import 
of  such  a  vast  sum? 

And  because  it  was  so  easy  to  inflame  the  public 
imagination  with  the  very  mention  of  the  "Steel  Trust," 
the  corporation  became  a  shining  mark  for  the  attacks 
of  demagogues  who  recognized  in  it  an  excellent  net  for 
snaring  votes. 

This  does  not  mean  that  all  the  attacks  on  the  big 
corporation  have  been  the  work  of  demagogues.  Some 
have  been  originated  by  men  entirely  sincere  in  their 
conviction  that  so  great  an  enterprise  was  inherently 
dangerous  to  the  well  being  of  the  country  at  large.  But 
it  was  generally  overlooked  that  the  power  to  do  harm 
implies  an  equal  power  to  work  good,  and  the  question 
resolves  itself  in  the  final  analysis  to  an  individual  one. 
What  were  the  powers  of  the  Steel  Corporation  and 
how  were  they  used?  The  investigations,  ending  in  the 
suit  for  the  dissolution  of  the  "Steel  Trust"  have 
brought  to  the  light  of  day  all  the  actions  of  the  big 
company,  have  submitted  them  to  the  glare  of  pitiless 
publicity  and  the  vast  industry  has  been  judged  not 
alone  in  the  courts  but  at  the  bar  of  public  opinion. 
What  have  been  these  investigations,  why  were  they 
instituted  and  what  have  they  resulted  in? 

On  June  18,  1898,  an  investigation  into  the  question 
of  trusts  and  their  relation  to  labor  and,  in  fact,  their 
effect  on  the  country  generally,  was  decided  on  by 
resolution  of  Congress.  A  committee,  known  as  the 
Industrial  Commission,  was  appointed  to  make  the  in- 
vestigation. This  commission  was  composed  of  five 
members  of  the  Senate,  five  members  of  the  House  of 
Representatives  and  nine  others,  assisted  by  a  large 
corps  of  experts  in  economics.    The  committee  did  not 


Investigations  and  the  Dissolution  Suit      189 

finish  its  work  until  the  later  part  of  1901,  its  report 
being  presented  on  December  5  of  that  year.  So  that 
the  corporation  began  its  existence  during  the  life  of 
the  commission  and  came  in  for  a  certain  amount  of 
study  on  its  part.  As  the  report,  generally  speaking, 
was  an  academic  one  and  as  it  dealt  very  little  with  the 
corporation,  it  may  be  passed  over  here. 

The  first  investigation  bearing  directly  upon  the 
methods  or  practices  of  the  Steel  Corporation  was  be- 
gun during  the  administration  of  President  Roosevelt. 
James  R.  Garfield,  appointed  Commissioner  of  Col-- 
porations  in  the  Department  of  Commerce  &  Labor 
when  the  department  was  instituted  early  in  1903,  was 
instructed  by  the  president  to  investigate  various  large 
corporations  and  in  the  course  of  this  work  he  directed 
his  attention  to  the  steel  trade.  About  1905  Mr.  Gar- 
field began  an  investigation  of  the  corporation  and  the 
work  was  carried  on  until  some  years  after  he  had  re- 
signed his  post  and  become  a  member  of  the  Roosevelt 
cabinet.  The  report  of  the  Commissioner  of  Corpora- 
tions on  the  steel  industry  was  made  by  Herbert  Knox 
Smith,  who  held  the  post  under  President  Taft. 

Approximately  two  years  were  spent  by  Mr.  Garfield 
in  this  investigation.  Some  years  later,  testifying  under 
oath,  he  stated  that  the  management  of  the  corporation 
had  put  no  obstacle  in  the  path  of  the  investigation, 
but  that  on  the  contrary  Judge  Gary  had  ordered  that 
all  information  he  demanded  be  given.  Further,  Mr. 
Garfield  said  that  the  head  of  the  big  company  had 
asked  him  to  inform  him  if  anything  contrary  to  law 
was  discovered  during  the  investigation  as  it  was  the 
desire  and  intention  of  the  management  to  meet  the  law 
fully  and  to  correct  any  abuses  if  they  existed.  Mr. 
Garfield,  apparently,  could  find  no  cause  of  complaint, 
for  he  reported  to  the  President  that  he  had  discovered 
nothing  that  necessitated  that  the  Department  of  Justice 
be  informed  with  a  view  to  instituting  proceedings. 

Further,  Mr.  Garfield  declared,  in  questioning  com- 


190        The  United  States  Steel  Corporation 

petitors  of  the  corporation,  steel  consumers  and  railroad 
traffic  managers,  he  had  found  no  indication  of  the 
crushing  of  competition  which  would  have  been  re- 
vealed by  complaints  of  competitors  as  they  had  been 
in  the  case  of  other  "trusts,"  no  signs  of  discontent 
among  consumers  and  no  evidence  of  rebating,  used  by 
some  big  concerns  as  a  powerful  weapon  in  eliminat- 
ing competition. 

On  July  1,  1911,  the  report  of  Mr.  Smith  was  sub- 
mitted, through  Secretary  of  Commerce  and  Labor 
Charles  Nagel,  to  President  Taft.  Mr.  Smith's  report 
was  an  exhaustive  and  complete  study  of  the  corpora- 
tion. One  may  find  fault  with  his  conclusions,  but  the 
work  is  without  equal  as  a  compendium  of  facts  and 
statistics  regarding  the  corporation. 

On  the  whole  the  Smith  report  was  unfavorable  to 
the  corporation,  although  the  Commissioner  made  no 
claim  of  suppressed  competition.  His  criticisms  were 
leveled  principally  at  the  big  company  on  the  two  points 
of  overcapitalization  and  the  matter  of  the  Hill  ore  lease. 

Mr.  Smith  claimed  that  the  tangible  assets  of  the 
corporation  at  the  time  of  its  organization  were  $682,- 
000,000  against  which  $1,400,000,000  of  securities  were 
issued.  At  the  end  of  1910,  he  said,  tangible  assets  had 
increased  to  $1,187,000,000  and  securities  issued  to 
$1,468,000,000. 

The  reader  will  remember  that,  in  an  earlier  chapter, 
it  was  pointed  out  that  the  overcapitalization  of  the 
corporation  did  not  admit  of  doubt,  an  assertion  proven 
by  its  practical  admission  by  the  management  of  the 
corporation  who  put  $500,000,000  of  earnings  into  new 
construction  for  no  other  apparent  reason  than  to  equal- 
ize capitalization  and  property  values.  Yet  I  believe 
that  Mr.  Smith's  figures  are  somewhat  too  drastic.  Some 
of  the  reasons  for  this  belief  have  been  stated  before, 
but  it  is  pertinent  to  point  out  that,  in  the  1910  valua- 
tion, Mr.  Smith  indicates  the  main  point  of  divergence 
is  that  of  ore  reserve  values  and  on  this  point  it  would 


Investigations  and  the  Dissolution  Suit       191 

be  safe  to  say  that  the  mass  of  opinion  in  the  steel  trade, 
that  is  the  mass  of  competent  observers,  would  support 
the  corporation's  figures. 

That  Mr.  Smith's  criticism  of  the  Hill  lease  was  well 
taken  seems  to  be  proven  by  the  decision  of  the  directors 
to  abandon  the  lease,  although  another  reason  for  this 
action  was  to  be  found  in  the  gradual  decline  in  the 
metallic  content  of  the  ore.  Yet  the  question  as  to 
whether  the  undertaking  of  the  lease  was  intended,  as 
Mr.  Smith  thinks,  to  keep  out  competitors,  or  merely 
to  secure  a  safe  ore  reserve  for  the  corporation,  must  al- 
ways remain  a  matter  of  opinion.  As  the  corporation's 
entire  history  fails  to  indicate  a  desire  to  crush  or  to 
keep  out  competitors  it  appears  only  fair  to  give  it  the 
benefit  of  the  doubt  in  this  instance.  On  one  point,  how- 
ever, the  lease  is  open  to  criticism ;  it  seems  to  have 
been  an  error  of  business  judgment. 

But  the  work  of  the  Commissioner  of  Corporations 
was  being  done  quietly,  and  in  the  meanwhile  the  public 
were  being  kept  keenly  interested  in  the  trust  question 
and  politicians  were  waging  active  war  against  the 
trusts.  The  evidence  brought  out  in  the  Standard  Oil 
and  Tobacco  suits  served  to  inflame  public  indignation 
against  big  business  generally  and  "hit  the  trusts"  be- 
came almost  a  slogan  for  political  advancement.  It 
was  no  wonder,  then,  that  the  "Steel  Trust"  should  be 
criticised  and  it  should  be  questioned  why  no  action 
had  been  taken  against  it,  the  obvious  answer,  that  it 
had  not  violated  the  law,  being  one  which  would  hardly 
have  satisfied  the  masses  and  certainly  one  that  politi- 
cians were  not  going  to  advance  under  the  circum- 
stances. Public  sentiment  on  the  trust  question,  more- 
over, was  being  kept  at  fever  heat  by  a  certain  class  of 
publication,  and  it  was  small  wonder  that  so  rich  an 
opportunity  was  seized  upon  by  politicians.  On  May  4, 
1911,  a  resolution,  proposed  by  Representative  Augustus 
O.  Stanley,  of  Kentucky,  calling  for  an  investigation  of 
the  United   States   Steel   Corporation   was  introduced 


193        The  United  States  Steel  Corporation 

into  the  House  and  passed  and  a  committee  of  congress- 
men headed  by  Mr.  Stanley  was  appointed  to  undertake 
the  work.  The  other  members  of  the  committee,  which 
became  known  as  the  Stanley  Committee,  were: 

Charles  L.  Bartlett,  of  Georgia,  Democrat. 

Jack  Beall,  of  Texas,  Democrat. 

Martin  W.  Littleton,  of  New  York,  Democrat. 

D.  J.  McGillicuddy,  of  Maine,  Democrat. 

Augustus  P.  Gardner,  of  Massachusetts,  Republican. 

Henry  G.  Danforth,  of  New  York,  Republican. 

H.  O.  Young,  of  Michigan,  Republican. 

John  A.  Sterling,  of  Illinois,  Republican. 

The  committee  shortly  began  its  work  and  in  the 
course  of  its  investigation  summoned  as  witnesses  the 
heads  of  the  corporation  and  of  various  independent 
steel  companies,  experts  in  economics,  consumers  and 
a  host  of  other  witnesses.  The  greatest  publicity  was 
given  to  these  hearings,  but  the  corporation,  although 
practically  put  on  trial,  could  not  avail  itself  of  the 
usual  recourse  of  a  defendant,  could  not  call  witnesses 
on  its  behalf. 

On  August  2,  1912,  the  Stanley  Committee  presented 
its  report,  or  rather  reports,  for  there  were  several.  The 
majority  report,  signed  by  Messrs.  Stanley,  Bartlett, 
Beall,  Littleton  and  McGillicuddy,  was  a  sweeping  con- 
demnation of  the  corporation,  its  organization  and  its 
methods.  This  was  a  matter  of  little  surprise  as  the 
entire  method  of  conducting  the  investigation  was  suffi- 
cient to  convince  the  unprejudiced  mind  that  the  effort 
of  the  investigators  was  not  so  much  to  find  out  whether 
the  corporation  had  been  influential  for  good  or  evil 
but  .to  prove  that  it  was  actually  a  violator  of  the  law. 
Practically  everything  the  corporation  ever  did  was 
condemned  in  this  report.  Among  the  items  that  came 
for  particular  criticism  were  overcapitalization,  the  bond 
conversion  plan,  the  Hill  ore  lease,  the  Union-Sharon 
purchase,  the  Gary  dinners,  the  Tennessee  purchase, 


Investigations  and  the  Dissolution  Suit      193 

the  corporation's  attitude  toward  labor  unions  and 
towards  labor  generally,  and  interlocking  directorates. 

According  to  the  report  the  corporation  played  an  im- 
portant and  dangerous  part  in  influencing  legislation, 
particularly  in  helping  to  disseminate  literature  in  favor 
of  a  high  tariflf.  The  letters  produced  in  support  of  this 
charge,  however,  do  not  seem  to  be  very  convincing 
proof,  indicating  that  no  means  other  than  perfectly 
leg^itimate  one  were  used  to  assist  in  maintaining  the 
tariff  on  steel  products,  the  necessity  for  which  all  steel 
men  are  agreed  on. 

In  regard  to  the  purchase  of  the  Tennessee  Coal,  Iron 
&  Railroad  Co.,  the  Stanley  Committee  asserted  unequi- 
vocally that  George  W.  Perkins,  a  Morgan  partner  and 
a  member  of  the  board  of  directors  of  the  Steel  Cor- 
poration, deliberately  attempted  to  precipitate  a  run  on 
the  Trust  Co.  of  North  America  with  the  purpose  of 
forcing  the  interests  in  control  of  the  Tennessee  com- 
pany to  sell.  The  details  of  the  deal  and  the  events 
connected  with  the  run  on  the  trust  company  have  been 
discussed  in  the  chapter  devoted  to  the  Tennessee  pur- 
chase. 

On  the  question  of  interlocking  directorates  the  ma- 
jority of  the  Stanley  Committee  expressed  their  grave 
apprehension  of  its  menace  to  the  country  and  pointed 
out  that  the  corporation,  through  its  directors,  had 
representation  on  the  boards  of  railroads  capitalized  at 
$10,265,000,000,  banks  and  trust  companies  whose 
capital,  surplus  and  undivided  profits  aggregated  $3,315,- 
000,000,  industrial  concerns  capitalized  at  $2,803,509,000 
and  express,  steamship  and  terminal  companies  capital- 
ized at  $2,272,000,000. 

Finally  the  committee  demanded  that  the  railroads 
owned  by  the  Steel  Corporation  be  segregated  from  it  as 
a  matter  of  public  necessity,  the  ownership  of  these 
roads  giving  the  corporation  a  great  advantage  over* 
competitors. 

A  minority  report,  signed  by  Augustus  P.  Gardner, 


19-1        The  United  States  Steel  Corporation 

Henry  G.  Danforth  and  H.  O.  Young,  concurred  with 
the  main  report  in  some  particulars  but  suggested  that 
the  majority  had  singled  out  incidents  to  bolster  up  its 
arguments  without  regard  to  their  relative  unimport- 
ance, the  result  being  an  overdrawn  picture  of  the 
iniquities  claimed  to  have  been  perpetrated  by  the  cor- 
poration. While  the  second  report  unequivocally  con- 
demned the  organization  of  the  corporation  as  an  at- 
tempt by  the  Morgan  interests  to  eliminate  competition 
against  the  steel  companies  in  which  they  were  con- 
cerned and  to  do  away  with  the  ever  present  menace 
that  Andrew  Carnegie  was  supposed  to  be,  it  said  the 
actual  control  of  the  actions  of  the  great  combine  had 
been  put  into  the  hands  of  "exceedingly  competent,  al- 
though perhaps  not  altruistic,  managers  who  have  sub- 
sequently made  it  a  success." 

The  minority  report  also  pointed  out  that  significant 
fact  that  the  price  of  steel,  as  based  on  a  representative 
list  of  products,  had  declined  from  $38.80  a  ton  before 
the  corporation  was  formed  to  $36.11  in  1911. 

Finally  the  minority  members  did  not  favor  the  disso- 
lution of  the  corporation,  merely  contenting  themselves 
with  the  suggestion  that  it  be  put  under  Federal  control. 
Incidentally  such  control  over  all  corporate  activities 
has  been  frequently  urged  by  Judge  Gary,  head  of  the 
corporation. 

This  did  not  end  the  list  or  reports  as  Representatives 
Young  and  Littleton  each  appended  their  personal 
views,  both  of  which  were  favorable  to  the  Steel  Cor- 
poration in  many  respects. 

A  year  or  more  after  the  presentation  of  the  Stanley 
Committee  reports  some  interesting  events  calculated 
to  throw  a  new  light  on  the  causes  that  led  to  the  in- 
ception of  the  investigation  transpired.  A  man  known 
as  David  Lamar  (an  assumed  name  on  his  own  con- 
fession), one  who  bore  so  unsavory  a  reputation  in 
financial  circles  that  he  was  styled  "The  Wolf  of  Wall 
Street,"  came  forward  with  the  assertion  that  he  himself 


Investigations  and  the  Dissolution  Suit       195 

had  written  the  Stanley  resolution  and  had  used  it,  or 
attempted  to  do  so,  as  a  club  over  the  heads  of  the 
]\Iorgan  interests.  This  failing,  he  had  sent  the  resolu- 
tion to  Stanley  through  Henry  B.  Martin,  secretary  of 
an  association  called  the  Anti-Trust  League  and  the 
Kentucky  congressman  had  introduced  it  into  the 
House. 

Lamar's  story  was  confirmed  by  Martin  and  by  Ed- 
ward Lauterbach,  a  New  York  Lawyer.  It  was  followed 
by  a  denial  on  the  part  of  Stanley  who  pointed  out  that 
the  resolution  was  offered  originally  by  him  in  1910,  a 
year  before  the  time  of  its  passage  upon  its  second  intro- 
duction, whereas  Lauterbach  had  said  that  Lamar 
showed  him  the  resolution  in  1911.  The  record  of  the 
Senate  committee  which  heard  the  Lamar  evidence, 
however,  shows  that  Lauterbach  stated  he  had  seen 
the  resolution  as  early  as  1908,  or  thereabouts  and  that 
he  thought  it  had  been  offered  to  the  House  in  1910. 
Upon  a  suggestion  from  a  Senator,  who  apparently 
was  not  cognizant  of  the  fact  that  the  resolution  had 
been  presented  unsuccessfully  a  year  before  its  passage, 
that  it  did  not  come  before  the  House  until  1911,  Lauter- 
bach corrected  his  date.  Under  the  circumstances  this 
correction  was  natural,  although  the  original  testimony 
was  the  more  reliable. 

However  innocent  Stanley  might  have  been  of  knowledge 
of  Lamar's  authorship  of  the  resolution,  and  however 
sincere  his  motives  in  bringing  it  before  Congress,  the 
connection  of  "The  Wolf  of  Wall  Street"  with  the  mat- 
ter, which  seems  fairly  conclusively  proven,  was  in  it- 
self sufficient  to  give  a  sinister  aspect  to  the  whole 
investigation,  to  suggest  that  its  inception  was  the  re- 
sult of  base  motives. 

Following  the  Stanley  investigation  came  the  Federal 
Steel  dissolution  suit.  That  the  one  grew  out  of  the 
other  is  easy  to  believe.  In  fact  it  would  be  difficult  to 
think  otherwise.  The  United  States  Steel  Corporation 
had  been  organized,  done  business  and  prospered  under 


196        The  United  States  Steel  Corporation 

successive  Republican  administrations.  It  had  been  in- 
vestigated by  the  governmental  departments  charged 
with  such  work  but  these  had  failed  to  find  sufficient 
evidence  to  warrant  the  bringing  of  a  suit  against  the 
big  company.  The  Stanley  resolution  was  passed  by  a 
House  controlled  by  a  Democratic  majority  and  the 
measure  had  been  applauded  by  a  large  body  of  voters 
who  had  been  taught  to  believe  by  their  political  ad- 
visors that  all  big  business  was  necessarily  evil.  The 
Republican  Party  was  facing  grave  danger  of  defeat  in 
the  coming  elections  of  1912  and  the  advantage  the  in- 
vestigation had  gained  for  the  Democrats  among  the 
class  of  voters  referred  to  could  only  be  offset,  it  seemed, 
by  a  political  "grand  stand  play"  of  the  same  nature. 
Here,  again,  we  come  to  a  question  of  motives,  but  all 
the  evidence  obtainable  seems  to  show  that  this  was  at 
least  one  of  the  reasons  why,  on  October  26,  1911,  the 
Attorney  General  for  the  United  States,  George  W. 
Wickersham,  caused  to  be  filed  at  Trenton  a  suit  for  the 
dissolution  of  the  United  States  Steel  Corporation. 

It  cannot  be  said  that  the  suit  surprised  anyone.  The 
country  at  large  had  long  wondered  why  no  action  had 
been  taken  against  the  Steel  Corporation ;  why  this 
great  combine  alone  seemed  to  be  immune  from  attack 
by  the  Federal  authorities.  Those  unfamiliar  with  its 
conduct  and  policies  and  knowing  it  only  as  the  biggest 
of  the  "trusts"  could  attribute  the  immunity  only  to 
political  influence,  while  those  better  informed,  although 
believing  that  the  corporation's  entire  history  had  been 
such  as  to  render  attack  futile,  all  violations  of  the  law 
having  been  carefully  avoided  by  it,  and  that  the  cor- 
poration was  not  a  monopoly  in  restraint  of  trade,  felt 
that  the  force  of  popular  opinion  must  sooner  or  later 
result  in  a  suit. 

In  the  Government's  charges  were  reiterated  practic- 
ally the  same  complaints  found  against  the  corporation 
in  the  Stanley  report;  and  a  complete  dissolution  was 


Investigations  and  the  Dissolution  Suit      197 

asked  for.  The  corporation  replied  denying  in  total  all 
the  charges  and  asserting  its  innocence  of  any  violation 
of  the  Sherman  anti-trust  act 

Jacob  M.  Dickinson,  former  Secretary  of  War  in  the 
Roosevelt  cabinet,  v^^as  put  in  charge  of  the  prosecution, 
assisted  by  Henry  E.  Colton.  An  imposing  array  of 
legal  talent  w^as  lined  up  on  the  corporation  side,  its 
counsel  including  Joseph  H.  Choate,  John  G.  Johnson, 
Francis  Lynde  Stetson,  Richard  V.  Lindabury,  Cor- 
denio  A.  Severance,  David  A.  Reed  and  Raynal  C.  Boil- 
ing. The  actual  conduct  of  the  case  was  principally  in 
the  hands  of  Messrs.  Lindabury,  Severance  and  Reed, 

Hearings  before  a  Special  Examiner  were  ordered 
and  these  began  in  New  York  early  in  1912.  Many  months 
were  consumed  in  the  hearing  of  testimony  on  either 
side  and  it  was  not  until  the  Spring  of  1914  that  the 
last  of  the  witnesses  was  examined.  Among  those 
called  to  testify  were  former  President  Roosevelt, 
prominent  steel  men  like  John  A.  Topping,  E.  C.  Felton, 
Joseph  G.  Butler,  Willis  L.  King,  Charles  M.  Schwab, 
James  R.  Bowron,  Frank  S.  Witherbee,  W.  H.  Donner, 
A.  F.  Huston,  Edwin  R.  Crawford,  A.  W.  Thompson, 
Karl  G.  Roebling,  James  A.  Campbell,  C.  W.  Bray,  W. 
W.  Lukens,  John  Stevenson,  Jr.,  and  a  host  of  others, 
prominent  economists  like  Professor  Jeremiah  Jenks  and 
Dr.  Francis  Walker,  financiers  like  Oakleigh  Thorne, 
of  the  Trust  Co.  of  America,  George  M.  Reynolds  and 
others.  Directors  of  the  corporation  including  Judge 
Gary,  James  A.  Farrell,  J.  H.  Reed.  Percival  Roberts, 
Jr.,  Daniel  Reid,  and  so  on,  not  to  mention  a  vast  array 
of  railroad  purchasing  agents,  heads  of  large  steel  con- 
suming companies,  and  many  others  among  whom  may 
be  mentioned  James  R.  Garfield  and  Lewis  Cass  Led- 
yard. 

A  large  part  of  the  testimony  was  devoted  to  events 
far  preceeding  the  organization  of  the  corporation,  it 
being  the  intent  of  the  government  counsel  to  show 
that  not  only  was  the  corporation  restraining  trade  but 


198        The  United  States  Steel  Corporation 

that  the  very  elements  of  which  it  was  composed,  the 
companies  absorbed  by  the  great  merger,  were  them- 
selves organized  in  violation  of  the  law.  As  the  hear- 
ings progressed  the  conviction  that  the  corporation 
would  emerge  from  the  ordeal  of  prosecution  successful 
became  more  prevalent,  the  evidence,  to  the  lay  mind, 
all  supporting  its  denial  of  any  violation  of  the  law.  The 
witnesses  called  for  the  defence  were  unanimous  in  de- 
claring that  the  big  company,  far  from  restraining  com- 
petition, had  fostered  it,  and  this  point,  in  effect,  was 
the  very  nub  of  the  matter.  Even  the  witnesses  for  the 
prosecution,  many  of  them,  took  the  same  attitude. 

It  was  in  listening  to  this  testimony,  or  the  greater 
part  of  it,  that  the  writer  conceived  the  idea  of  record- 
ing the  history  of  the  great  corporation.  Here  was  a 
mass  of  data,  the  sworn  statements  of  prominent  and 
reliable  business  men,  a  foundation  that  could  not  be 
excelled  for  a  work  of  this  character.  From  this  mass 
of  evidence,  in  large  part,  have  been  taken  the  facts 
stated  in  this  history.  The  records  in  the  dissolution 
suit,  in  fact,  contain  the  whole  story  of  the  corpora- 
tion. Hence  it  would  be  vain  to  review  in  detail  all 
the  testimony  here. 

The  arguments  of  counsel  for  both  sides  were  pre- 
sented to  the  U.  S.  District  Court  of  Appeals,  and  for 
months  the  business  world  waited  anxiously  for  its  de- 
cision, one  that  would  have  a  very  far  reaching  effect 
not  on  the  corporation  or  the  steel  trade  alone,  but  on 
business  generally.  For  it  was  felt  that  a  decision 
adverse  to  the  defendant  would  mean  that  mere  bigness 
was  considered  illegal  and  that  no  large  corporate  enter- 
prise would  be  allowed  to  exist,  however  free  from  evil 
its  course  of  action  might  be.  If  the  Steel  Corporation 
was  adjudged  a  monopoly  in  restraint  of  trade,  it  was 
thought,  then  all  big  business  was  doomed,  for  the 
corporation,  certainly,  had  sought  in  every  way  to  meet 
fully  the  requirements  of  the  law. 

It  was  not  until  June  3,  1915,  that  the  Court  rendered 


Investigations  and  the  Dissolution  Suit      199 

its  decision,  the  most  favorable  to  big  business  ever 
handed  down  in  an  anti-trust  suit,  denying  the  petition 
of  the  Government  and  completely  absolving  the  Steel 
Corporation  from  the  charge  of  monopoly.  The  decision 
was  unanimous,  all  the  judges  being  in  entire  agreement 
that  the  corporation  was  not,  and  never  had  been,  a 
monopoly  in  restraint  of  trade. 

All  four  of  the  judges  concurred  on  the  main  point 
at  issue — that  of  trade  restraint.  A  minority  opinion, 
signed  by  Justices  Woolley  and  Hunt,  expressed  some 
divergence  of  thought  on  minor  points,  which  we  shall 
come  to.  In  the  meantime,  let  us  examine  some  extracts 
from  the  main  opinion,  signed  by  Judge  Buffington, 
presiding,  and  Judge  McPherson. 

"As  trade  is  a  contest  for  it  between  persons  and  the 
gain  of  that  trade  by  one  means  the  loss  of  it  to  an- 
other, it  follows  that  the  person  who  best  knows 
whether  the  man  who  gained  it  gained  it  fairly,  is  the 
man  who  lost  it.  If  there  is  monopoly  we  can  find  proof 
of  it  from  business  competitors."  (Page  10,  Opinions  of 
the  Court.) 

"For  of  the  conduct  of  the  Steel  Corporation,  the 
views  of  its  competitors  is  the  best  gauge.  Monopoly 
and  unreasonable  restraint  of  trade  are,  after  all,  not 
questions  of  law,  but  questions  of  hard-headed  business 
rivalry,  and  whether  there  is  monopoly  of  an  industry, 
whether  trade  is  subjected  to  unreasonable  restraint, 
whether  there  is  unfair  competition  are  facts  about 
which  business  competitors  best  know  and  are  best 
qualified  to  speak.  And  it  may  be  accepted  as  a  fact 
that  where  no  competitor  complains,  and  much  more  so, 
where  they  unite  in  testifying  that  the  business  conduct 
of  the  Steel  Corporation  has  been  fair,  we  can  rest 
assured  there  has  been  neither  monopoly  nor  restraint. 
Indeed,  the  significant  fact  should  be  noted  that  no  such 
testimony  of  acts  of  oppression  is  found  in  this  record 
as  was  given  by  the  competitors  of  the  Tobacco  or 
Standard  Companies  in  the  suits  against  those  com- 


200        The  United  States  Steel  Corporation 

panics.  We  have  carefully  examined  all  the  evidence 
given  by  competitors  of  the  Steel  Corporation.  We 
have  read  the  testimony  of  customers  who  purchased 
both  from  it  and  from  its  competitors.  Its  length  pre- 
cludes its  recital  here,  but  we  may  say  its  volume,  the 
wide  range  of  location  from  which  such  witnesses  came 
and  their  evidently  substantial  character  in  their  several 
communities,  make  an  inevitable  conclusion  that  the 
field  of  business  enterprise  in  the  steel  business  is  as 
open  to,  and  is  being  as  fully  filled  up  by  the  competi- 
tors of  the  Steel  Corporation,  as  it  is  by  that  company." 
(Page  28.) 

Next  the  court  turns  to  "that  most  injurious  feature 
of  monopoly's  wrong  to  the  public,  to  wit,  increase  in 
the  price  of  its  product  or  a  deterioration  in  quality." 
It  disposes  of  the  question  of  quality  first  thus : 

"No  dispute  arises  under  the  proofs.  They  are  simply 
uniform  that,  both  with  independents  and  the  Steel  Cor- 
fHDration,  there  has  been  a  steady  bettering  of  quality 
in  steel  products." 

The  question  of  prices  it  discussed  at  some  length 
and  intimated  that  there  had  been  no  evidence  presented 
to  show  that  the  corporation  had  unduly  raised  prices, 
while  a  large  number  of  steel  consumers  had  agreed  in 
testifying  that  active  competition  in  prices  for  steel 
existed  between  the  corporation  and  the  independent 
companies,  which  would  alone  indicate  that  prices  had 
been  only  such  as  ordinary  business  practice  warranted. 
The  Court  added :  "Th^  Steel  Corporation  has  adopted 
a  policy  of  price  publicity  and  adherence,  somewhat 
analogous  to  the  freight  rate  stability  followed  by  the 
railroads  under  the  directions  of  the  Interstate  Com- 
merce Commission." 

Next  the  Court  considered  the  subject  of  restraint  of 
trade  in  the  export  or  international  field  and  found  that: 
"we  are  warranted  in  holding  that  the  foreign  trade  of 
the  Steel  Corporation,  its  mode  of  building  it  up,  and  its 
retention  when  built  up  are  not  contrary  to  the  Sherman 


Investigations  and  the  Dissolution  Suit      201 

Law.  To  hold  otherwise  would  be  practically  and 
commercially  to  enjoin  the  steel  trade  of  the  United 
States  from  usin^  the  business  methods  which  are  neces- 
sary in  order  to  Ijuild  up  and  maintain  a  dependable 
business  abroad,  and  if  the  Sherman  Law  were  so  con- 
strued, it  would  itself  be  a  restraint  of  trade  and  unduly 
prejudice  the  public  by  restraining  foreign  trade." 

On  the  charge  that  the  inherent  nature  of  the  cor- 
poration was  monopolistic,  that  the  object  of  its  or- 
ganizers in  bringing  it  together  was  for  restraining  trade 
the  court  says,  in  part: 

"In  view  of  the  fact  that  the  proportionate  volume 
of  competitive  business  has  increased  since  the  steel 
company  was  formed  and  that  the  proofs  show  no  at- 
tempt by  it  to  monopolize  it  to  the  exclusion  of  its 
competitors,  to  now  attribute  to  those  who  formed  the 
corporation  an  intended  monopolization  would  be  to  say 
that,  having  formed  the  corporation  for  the  purpose  of 
monopoly,  they  immediately  abandoned  such  purpose 
and  made  no  effort  to  accomplish  it." 

The  Court  disposes  of  the  matter  of  the  purchase  of 
the  Tennessee  Coal,  Iron  &  Railroad  Co.,  and  of  other 
purchases  of  steel  properties  criticized  by  the  Govern- 
ment, by  saying,  "we  cannot  but  feel,  in  the  light  of  the 
proofs,  that  they  were  made  in  fair  business  course  and 
were,  to  use  the  language  of  the  Supreme  Court  in  the 
Standard  Oil  case,  'the  honest  exertion  of  one's  right 
to  contract  for  his  own  benefit  unaccompanied  by  a 
wrongful  motive  to  injure  others.'  " 

Perhaps  the  most  important  point  of  divergence  be- 
tween the  two  opinions  lies  in  the  fact  that  Justice 
WooUey,  with  whom  Justice  Hunt  concurred,  held  that 
it  was  the  purpose  of  the  organizers  of  the  corporation 
to  restrain  trade.  These  Judges  found,  however,  that 
the  big  company  did  not  attempt  to  exert  a  power,  if  it 
possessed  it,  to  destroy  its  competitors;  they  say: 
"Upon  the  finding  that  the  corporation,  in  and  of  itself, 


202        The  United  States  Steel  Corporation 

is  not  now  and  has  never  been  a  monopoly  or  a  com- 
bination in  restraint  of  trade,  a  decree  of  dissolution 
should  not  be  entered  against  it." 

"Reference  has  already  been  made  to  the  opinions  of 
the  judges  on  the  matter  of  the  Gary  Dinners  and  of 
the  meetings  that  grew  out  of  them.  In  denying  the 
petition  for  a  dissolution  of  the  corporation  the  court 
stated  that  it  would,  if  requested  by  the  Government, 
retain  the  bill  of  complaint  to  restrain  further  action 
of  this  sort  by  the  defendant  corporation. 

Metaphorically,  business  breathed  a  sigh  of  relief 
when  the  decision  was  made  public,  a  relief  only  miti- 
gated by  the  fact  that  an  appeal  to  the  U.  S.  Supreme 
Court  was  to  be  expected — and  will  doubtless  come 
before  these  lines  are  in  print.*  But  so  clear  and  unmis- 
takeable  were  the  findings  of  the  court,  so  little  question 
did  there  seem  to  be  in  the  minds  of  the  judges  that 
any  evidence  of  monopoly  or  restraint  of  trade  existed, 
that  the  final  issue  will  be  awaited  with  confidence. 

When  I  began  to  write  this  history  of  the  Steel  Cor- 
poration the  case  was  still  being  fought  out  before  an 
examiner.  I  tried  to  give  the  reader  as  concisely  as 
possible  the  impressions  I  gathered  from  listening  to 
the  testimony,  supplemented  with  knowledge  gathered 
through  associations  with  the  steel  trade.  At  times,  I 
feared,  my  readers  would  accuse  me  of  undue  prejudice 
in  favor  of  the  corporation.  Hence  the  opinion  of  the 
U.  S.  Circuit  Court  of  Appeals,  bearing  out  my  state- 
ments on  the  main  facts  connected  with  the  corpora- 
tion's history,  is  a  matter  of  peculiar  gratification. 


*The  appeal  was  filed  Oct.  28,  1915. 


CHAPTER  XIII 
LATER  HISTORY.     1907-1915. 

ALTHOUGH  the  business  depression  consequent  on 
the  panic  of  1907  seriously  affected  earnings  of 
the  Steel  Corporation  in  the  closing  months  of  the 
year,  the  big  company  was  able,  as  a  result  of  the  boom 
conditions  that  preceded  the  financial  catastrophe,  to  re- 
port the  largest  earnings  it  had  ever  shown.  Total 
earnings  were  $160,964,673.72,  and  a  net  balance  was 
left  for  dividends  of  $104,565,563.76.  After  the  payment 
of  the  dividends,  the  common  being  maintained  at  the 
established  rate  of  2%,  and  the  appropriation  of  $54,- 
000,000  for  property  additions,  a  net  surplus  of  $15,179,- 
836.76  remained. 

In  the  appropriations  for  additions  was  included  a 
sum  of  $18,500,000  for  the  continuation  of  the  work 
being  done  at  Gary,  making  the  total  amount  appro- 
priated for  this  purpose  to  the  end  of  1907,  $50,000,000. 
During  the  year  the  work  of  building  the  new  steel  city 
progressed  rapidly  and  $19,316.55  was  added  to  the 
$4,632,202  expended  the  previous  year. 

The  last  two  months  of  the  year  showed  the  effects 
of  the  business  depression,  earnings  of  the  last  quarter, 
net  for  dividends,  being  only  $18,614,416,  compared  to 
$28,758,142  the  three  m.onths  preceding.  But  it  was  not 
until  1908  that  the  full  force  of  the  storm  was  to  be  seen. 
In  the  first  quarter  of  this  year  net  profits  applicable 
to  dividends  dwindled  to  $8,854,297.37,  compared  with 
$27,031,008.20  a  year  previous,  and  second  quarter  prof- 
its were  $9,042,027.55  against  $30,843,512.61  in  the  same 
period  in  1907.  A  striking  comparison  of  the  diflFerence 
in  trade  conditions  that  occurred  in  the  twelvemonth  is 
afTorded  by  the  following  statistics. 


204        The  United  States  Steel  Corporation 

1908  1907 

Gross  sales  $482,307,840.34  $757,014,767.68 

Steel   ingot   production 7,838,713  tons            13,342,992  tons 

Finished  steel  production 6,206,932  tons            10,564,537  tons 

Number  of  employees  (avg.).  165,211                         210,180 

Net  earnings    $91,847,710.57  $160,964,673.72 

Net  for  dividends $45,728,713.70  $104,565,563.76 

No  special  appropriations  were  made  out  of  1908 
profits  and  a  surplus  of  $10,342,986.70  was  thus  shown 
for  the  year  after  the  dividend  payments.  However, 
such  an  appropriation  appeared  to  be  unnecessary  as  the 
corporation  already  had  a  large  reserve  fund  for  the 
most  important  work  underway,  the  building  of  the 
city  and  plant  at  Gary.  On  January  1,  1908,  the  balance 
on  hand  for  this  purpose  was  $26,051,242.62,  and  there 
was  spent  on  the  work  $18,848,472.19  during  the  year, 
so  that  at  the  start  of  1909  there  was  a  balance  of  suffi- 
cient size  to  continue  the  work  for  several  months. 

During  the  year  1908  the  bonded  debt  of  the  corpora- 
tion, which  had  been  increased  from  $564,670,876  at  the 
end  of  1906  to  $602,320,511  a  twelvemonth  later,  chiefly 
on  account  of  the  issuance  of  securities  for  exchange  for 
Tennessee  Coal  &  Iron  stock,  was  reduced  to  $594,- 
865,534. 

Among  the  important  items  of  expenditure  for  1908 
is  found  a  sum  of  $3,460,993  which  was  employed  in 
modernizing  the  plants  of  the  Tennessee  company  ac- 
quired the  previous  year.  This  was  the  beginning  of  a 
series  of  large  expenditures  extending  over  many  years, 
and  all  for  this  purpose.  Up  to  the  end  of  1914  approxi- 
mately $20,180,092  had  been  spent  on  this  work,  most  of 
it  coming  from  the  general  funds  of  the  corporation  and 
not  from  the  earnings  of  the  southern  subsidiary  itself. 

To  what  extent  the  acquisition  of  the  Tennessee  com- 
pany aflFected  the  Steel  Corporation's  capacity  is  shown 
in  a  table  submitted  in  the  report  to  stockholders  for 
1908,  the  figures  given  being  as  of  the  end  of  the  year. 


Later  History.     1907-1915.  205 

Blast  Furnace  Steel  Finished 

Products.  Ingots.  Steel. 

Tons.  Tons.  Tons. 

Capacity  April  1,   1901 7,440,000  9,425,000  7,719,000 

Purchase      of      Union      and 

Sharon  Cos 1,228.000  1.258,000  1,103,000 

Tennessee  purchase 1,000,000  500,000  400,000 

Additions   made   by  different  „  „„^ 

Cos    aftter   acquisition..     5,322,000  5,887,000  3,678,000 

Capacity  January  1,  1909....   14,990,000  17,070,000  12,900.000 

This  report  also  states  that  although  the  total  steel 
capacity  of  the  corporation  had  been  increased  by  2,306,- 
000  tons  during  1908  its  capacity  for  the  making  of 
bessemer  steel  had  decreased  746,000  tons.  Open  hearth 
capacity  increasing  3,052,000  tons.  These  figures  illus- 
trate sufficiently  the  change  then  occurring  in  the  steel 
trade  from  the  old  Bessemer  to  the  new  open  hearth 
process. 

An  even  more  striking  illustration  of  the  manner  in 
which  open  hearth  steel  has  been  displacing  the  older 
bessemer  process  in  recent  years  is  aflforded  by  the 
figures  of  the  American  Iron  &  Steel  Institute.  In  1880 
open  hearth  production  was  only  100,851  tons,  against 
1,064,262  tons  of  bessemer.  A  decade  after  bessemer 
production  was  3,688,871  tons  compared  with  513.232 
tons  of  open  hearth  and  in  1900  6,684,770  tons  of  bes- 
semer were  turned  out  by  the  steel  mills  of  this  country 
for  3,398,135  tons  of  open  hearth.  By  1907  the  two 
processes  of  steel  making  were  running  a  close  race  for 
popularity  with  consumers,  open  hearth  production  being 
11,549,736  tons  in  that  year,  and  bessemer  11,667,549 
tons.  In  every  subsequent  year  open  hearth  production 
has  been  the  larger,  as  shown  by  the  following  figures: 
Year.  Bessemer.  Open  hearth. 

1908  6.166.755  7.836,729 

1909  9,330,783         14.493.936 

1910  9.412,772         16.504,509 

1911  7,947.854         15.598.650 

1912  10.327.901         20.780.723 

1913  9,545,706         21.599.931 

1914  6,220,846         17,174,684 


206         The  United  States  Steel  Corporation 

Business  conditions  gradually  bettered  throughout 
1909,  although  the  so  called  open-market  that  existed 
in  the  steel  trade  resulted  in  an  average  of  prices  during 
the  year  somewhat  lower  than  in  1908.  Nevertheless 
increased  production  caused  a  marked  and  gradual  gain 
in  the  earnings  of  the  big  corporation,  which  from  $22,- 
921,268.75  in  the  first  quarter,  grew  to  $29,340,491.62  in 
the  second  quarter,  $38,246,907.43  in  the  third,  and  $40,- 
982,746.14  in  the  closing  three  months. 

Total  earnings  in  1909  were  $131,491,413.94,  and  after 
all  fixed  charges  had  been  met,  dividends  paid  and  a 
special  appropriation  of  $18,200,000  set  aside  for  new 
construction,  etc.,  a  surplus  of  $15,321,918.04  was  carried 
to  profit  and  loss.  The  bonded  debt  of  the  corporation 
in  1909  was  increased  by  $12,718,639.43  to  a  total  of 
$607,584,173.72,  there  having  been  issued  by  the  subsid- 
iary companies  bonds  to  a  total  of  $21,976,500,  and 
bonds  totalling  $9,257,860.57  having  been  redeemed. 

The  year's  operations  resulted  in  a  production  of  13,- 
355,189  tons  of  steel  ingots  and  9,859,660  tons  of  finished 
steel  products.  The  total  volume  of  business  was  re- 
ported at  $646,382,251.29. 

On  the  steel  plant  and  city  of  Gary  $11,081,367.80  was 
spent,  making  the  total  expended  on  the  project  to  De- 
cember 31,  1909,  $53,878,597.37.  Gary  was  now  a  steel 
producing  center.  Early  in  the  year  steel  rails  were 
turned  out  there  and  shortly  after  the  close  of  1908  and 
later  in  1909  several  of  the  steel  furnaces  and  other  fin- 
ishing mills  had  been  placed  in  operation.  About  this 
time  it  was  decided  that  two  of  the  other  constituent 
companies  of  the  corporation,  the  Sheet  and  Tinplate 
and  Bridge  companies,  should  erect  plants  at  Gary, 
which  plants  are  now  in  operation  and  have  been  for 
some  time. 

About  the  middle  of  1910  the  wave  of  improvement 
that  had  brought  better  business  and  profits  to  the  steel 
companies  began  to  slacken.  The  effect  was  not  very 
immediate  and  the  year,  as  a  whole,  was  one  of  the  best 


Later  History.     1907-1915.  207 

ever  experienced  by  the  corporation.  Earnings  reached 
a  total  of  $141,054,754.51,  the  next  best  twelvemonths 
business  ever  reported,  but  a  fall  in  quarterly  profits 
from  $40,170,960.83  in  the  quarter  ending  June  30,  to 
$25,901,729.87  was  sufficient  to  show  the  downward  ten- 
dency in  conditions  affecting  the  trade. 

Gross  business  aggregated  $703,961,424.41,  and  pro- 
duction reached  its  high  water  mark,  14,179,369  tons  of 
ingots  and  10,733,995  tons  of  finished  steel  being  turned 
out  by  the  plants  controlled  by  the  Steel  Corporation. 

Bonds  to  a  total  of  $17,392,752.14  were  redeemed  and 
$6,945,237.50  issued  making  the  outstanding  bonded 
debt  of  the  corporation  and  its  subsidiary  companies  on 
December  31,  1910,  $597,136,659.08.  Some  $16,000,000 
were  expended  in  further  work  at  Gary  bringing  the 
total  outlay  on  the  plant,  city  and  terminals  there  to 
$69,978,695.15,  of  which  $60,203,189.22  was  financed 
from  the  funds  of  the  parent  corporation  and  the  bal- 
ance by  various  subsidiary  companies,  including  the 
Bridge  and  Wire  companies,  which  began  the  construc- 
tion of  their  new  plants  during  the  year. 

Several  important  purchases  of  coal  properties  in  the 
States  of  Illinois  and  Indiana  were  made  in  the  years 
1909-1910.  These  gave  the  corporation  742  acres  of  land 
and  55,624  acres  of  coal  rights.  The  most  important 
new  development  recorded  at  this  period,  however,  was 
the  beginning  of  work  on  the  construction  of  another 
steel  plant  and  city,  near  Duluth,  Minn.  The  site  for 
this  plant  had  been  purchased  as  early  as  1907,  but  the 
events  of  the  year  and  the  dullness  that  followed  made 
it  seem  wise  to  postpone  the  project.  The  more  favor- 
able conditions  at  the  beginning  of  1910  warranted  its 
being  proceeded  with,  and  so  the  matter  was  put  in 
hand  and,  at  the  end  of  the  year,  $1,715,517.70  had  been 
spent  on  the  new  plant. 

In  accordance  with  its  policy  of  permitting  its  work- 
ers to  share  in  the  better  earnings  resulting  from  im- 
proved business  conditions  the  corporation,  in  1910,  an- 


208        The  United  States  Steel  Corporation 

nounced  another  advance  in  wages,  affecting  the  greater 
number  of  its  employees  who,  throughout  the  year,  ave- 
raged 218,435.  The  increase  averaged  something  over 
6%. 

Several  factors  operated  adversely  against  the  cor- 
poration, from  a  financial  standpoint,  in  1911.  The  de- 
cline in  business  noted  in  the  late  months  of  the  preced- 
ing year,  continued  through  and  v^ell  into  1912,  tonnage 
fell  off  and  prices  dropped  with  it.  In  May,  1911,  the 
Republic  Iron  &  Steel  Co.  precipitated  matters  by 
announcing  a  drastic  reduction  in  the  price  of  bars,  the 
most  important  steel  product,  and  this  led  to  general 
price  cutting,  affecting  every  steel  maker.  It  is  worthy 
of  note,  however,  that  the  conditions  that  now  prevailed 
had  nothing  of  panic  in  them.  The  business  world 
seemed  merely  to  be  hesitating,  to  be  timorous  about 
making  new  ventures,  to  question  the  future.  Perhaps 
the  real  reason  was  the  world  situation  ripening  for  the 
Great  War,  for  it  is  noticeable  that,  although  conditions 
over  the  end  of  1912  and  into  1913  were  good,  this  hesi- 
tancy was  still  in  evidence,  something  ominous  seemed 
to  hang  over  the  world  of  business  and  finance.  And,  I 
believe,  that  even  then  some  of  the  leaders  of  finance 
foresaw,  even  though  dimly  and  uncertainly,  the  trouble 
that  was  brewing. 

Earnings  of  the  Steel  Corporation  in  1911  were  $104,- 
305,465.87,  the  four  quarters  making  a  comparatively 
even  showing.  After  the  payment  of  dividends  only 
$4,665,494.78  was  left  for  surplus.  Dividend  require- 
ments, however,  were  considerably  larger  than  they  had 
been  in  previous  years.  The  rate  of  disbursement  on 
the  common  issue  had  been  increased  to  4%  in  1909,  and 
to  5%  in  1910,  at  which  rate  it  continued  until  the  latter 
part  of  1914. 

Production  in  1911  fell  off  to  12,753,370  tons  of  ingots 
and  9,476,248  tons  of  finished  steel  products,  and  the 
gross  volume  of  business  declined    to    $615,148,839.79. 


Later  History.     1907-1915.  209 

The  number  of  employees  also  grew  less,  the  average 
number  employed  in  the  period  being  196,888. 

Another  increase  in  the  bonded  debt  was  reported, 
new  securities  totalling  $33,416,000  being  issued,  and 
$9,498,359.46  being  redeemed.  The  bonded  debt  of  the 
big  company  on  December  31,  1911,  stood  at  $621,054,- 
299.62. 

Capital  expenditures  reported  for  the  year  included 
$7,939,813.46  at  Gary,  bringing  the  total  for  this  project 
to  $78,258,508.61  ;  $17,707,280.79  expended  for  the  acqui- 
sition of  new  coal  properties  in  the  Connellsville  region 
of  Pennsylvania,  $5,069,983.65  spent  on  the  Tennessee 
properties,  and  $1,437,518  spent  on  the  new  Duluth 
plant. 

The  two  most  important  events  of  the  year  were  the 
decision  of  the  directors  of  the  corporation  to  cancel 
the  Hill  Ore  lease  and  the  inception  of  the  Federal  suit 
for  the  dissolution  of  the  big  company  under  the  Sher- 
man anti-trust  law.  Both  of  these  events  took  place  on 
the  same  day,  October  26.  As  the  Hill  lease  has  been 
discussed  at  length  in  a  previous  chapter,  and  the  facts 
connected  with  the  dissolution  suit  have  already  been  told 
they  will  not  now  be  gone  into. 

Towards  the  close  of  the  year  just  reviewed  there  was 
a  gradual  increase  in  the  volume  of  steel  buying.  The 
railroads,  which  had  been  consuming  very  little  of  the 
metal — and  the  roads  are  the  largest  customers  of  the 
steel  companies — began  to  buy  in  something  like  normal 
proportion  and  continued  to  do  so  until  the  Spring  of 
1913.  Other  consumption  also  showed  more  activity 
and  under  the  impetus  of  this  buying  prices  for  steel 
products  gradually  advanced.  The  Corporation's  earn- 
ings, however,  did  not  immediately  reflect  this  better- 
ment, the  first  quarter  of  1912  showing  net  profits  from 
operations  of  only  $17,826,973.28,  but  a  steady  advance 
was  recorded  until  $35,191,921.82  was  reported  for  the 
last  three  months  of  the  period. 


310        The  United  States  Steel  Corporation 

For  the  year  net  earnings  of  $108,174,673.12  were 
made  and  a  balance  of  $3,605,247.37  was  carried  to  sur- 
plus. The  bonded  debt  of  the  corporation  on  December 
31,  1912,  showed  an  increase  of  $22,482,881  from  a  year 
previous,  bonds  and  mortgages  totalling  $32,428,246.50 
having  been  issued  and  $9,906,365.47  in  funded  debt 
having  been  redeemed.  The  bonded  debt  of  the  big 
company  and  its  subsidiaries  at  the  end  of  the  year 
stood  at  $643,537,180.65. 

Production  in  1912  amounted  to  16,901,223  tons  of 
ingots  and  12,506,619  tons  of  finished  steel.  The  total 
volume  of  business  amounted  to  $745,505,515.48.  Of 
this  sum  $494,637,808  represented  sales  of  steel  and 
other  products  to  customers  outside  the  corporation, 
$189,257,318  intercompany  sales,  and  the  balance  earn- 
ings from  transportation  and  other  sources. 

The  main  items  in  capital  expenditures  were  as  fol- 
lows: Work  at  Gary,  $1,725,052;  Duluth  plant,  $2,- 
676,066;  Tennessee  Coal,  Iron  &  Railroad  extensions, 
$1,833,094.  The  construction  of  the  Gary  plant  was  now 
practically  finished  and  the  plant  produced  1,093,578 
tons  of  pig  iron,  1,669,389  tons  of  steel,  and  over  1,186,- 
000  tons  of  finished  products  in  the  course  of  the  year. 

In  view  of  the  general  betterment  in  business  condi- 
tions it  was  decided  by  the  directors  of  the  corporation 
to  erect  a  big  plant  across  the  Canadian  border.  A  site 
for  this  plant  had  already  been  acquired  at  Ojibway, 
Ontario,  opposite  the  city  of  Detroit.  This  scheme  was 
never  carried  out  as  later  events  made  it  advisable  to 
postpone  the  matter  for  a  more  favorable  time,  which 
does  not  seem  yet  to  have  arrived. 

An  attempt  was  made  about  this  time  to  reduce  the 
working  hours  of  some  of  the  employees  from  the  twelve- 
hour  to  an  eight-hour  day.  Such  a  course  had  been 
recommended  by  a  special  committee  of  stockholders 
appointed  at  the  annual  meeting  in  1911,  but  the  attempt 
was  by  no  means  an  unqualified  success,  as  the  move- 


Later  History.     1907-1915.  211 

ment  met  with  considerable  opposition  from  the  men 
themselves. 

In  the  first  nine  months  of  1913  generally  satisfac- 
tory conditions  prevailed  in  the  trade,  and  earnings  were 
consequently  improved,  although  operating  costs  had  again 
been  increased  by  a  general  wage  increase  put  into 
eflFect  on  February  1  of  that  year.  The  first  quarter 
showed  net  earnings  of  $34,426,801.54,  the  second  $41,- 
219,813.42,  and  the  third  $38,450,400.03.  A  pronounced  de- 
cline was  reported  in  the  final  three  months  when  profits 
fell  to  $23,084,329.84.  The  good  results  of  the  earlier 
months  were  largely  due  to  the  big  carry-over  of  busi- 
ness from  1912  and  to  the  comparatively  high  average 
of  prices  received.  For  perhaps  the  first  time  in  the  his- 
tory of  the  steel  trade  the  railroads  placed  their  orders 
for  rails  for  1913  delivery  as  early  as  the  Summer  of  the 
preceding  year,  and  this  went  a  far  way  toward  effect- 
ing the  results  shown. 

After  a  special  $15,000,000  appropriation  the  corpora- 
tion showed  a  net  surplus  of  $15,582,183.62  for  1913. 
No  important  bond  issues  were  made  in  the  period  and, 
with  $16,660,866.76  in  bonds  redeemed  the  total  bonded 
debt  was  reduced  to  $627,366,681.47,  a  decrease  of  $16,- 
170,499.18. 

The  total  volume  of  business  amounted  to  $796,894.- 
299,  of  which  $518,999,605  represented  sales  to  outside 
customers;  $211,910,441  intercompany  sales,  and  the 
balance  transportation  and  other  business.  The  average 
number  of  employees  was  228,906,  the  highest  recorded 
so  far,  and  production  totalled  16,656,361  tons  of  ingots, 
and  12,374,838  tons  of  finished  steel  products.  The  prin- 
cipal expenditures  for  capital  account  included  $2,960,- 
124.92  spent  at  Gary,  $5,912,027.44  at  Duluth,  and  $1,- 
274,440.84  on  the  Tennessee  plants.  Fee  title  was  also 
acquired  during  the  year  to  certain  ore  properties  pre- 
viously worked  on  a  royalty  basis.  This  cost  $11,670,- 
181.87,  of  which  $2,283,677.63  was  paid  in  cash,  and  the 
remainder  in  notes  of  the  Oliver  Iron  Mining  Co. 


212        The  United  States  Steel  Corporation 

We  now  come  to  1914,  the  year  which  saw  the  begin- 
ning of  the  Great  War,  with  its  disastrous  results  on 
business  generally,  and  on  no  line  of  activity  more  than 
the  steel  trade.  The  events  of  this  year  are  too  recent 
and  too  well  known,  too  vitally  important  to  all  to  need 
repetition.  Industry,  in  the  middle  of  the  year,  was  just 
beginning  to  struggle  out  from  the  depression  that  had 
begun  in  the  later  half  of  1913  when  the  sudden  clash 
of  arms  paralyzed  world  money  markets,  closed  the 
stock  and  other  exchanges,  closed  or  restricted  opera- 
tions at  hundreds  of  plants  of  one  kind  or  another,  and 
threw  thousands  of  workers  out  of  employment. 

The  demand  for  steel,  never  very  active  at  any  time 
since  about  July,  1913,  fell  almost  to  a  vanishing  point, 
and  earnings  of  the  corporation,  in  the  last  quarter  de- 
clined to  the  lowest  point  in  its  history,  $10,935,635.36. 
Total  earnings  for  the  year  were  only  $71,663,615.17, 
and,  although  the  dividend  rate  on  the  common  stock 
was  reduced  from  5%  to  2%  annually  in  the  third  quar- 
ter, and  the  dividend  for  the  last  quarter  was  passed, 
earnings  were  not  sufficient  to  meet  charges,  and  a  de- 
ficit of  $16,971,983.83  was  reported. 

The  necessity  for  passing  the  dividend — and  it  was 
a  pressing  one — was  keenly  deplored  both  by  the  man- 
agement of  the  big  company  and,  naturally,  by  its  stock- 
holders. That  payments  would  have  been  maintained 
had  there  seemed  the  slightest  warrant  for  such  a  course 
seems  to  be  beyond  question  as  the  directors  realized 
that  the  wide  distribution  of  the  stock,  and  the  fact  that 
many  of  its  shareholders  were  people  of  small  incomes 
who  looked  to  their  Steel  dividends  almost  with  the 
feeling  of  security  they  would  have  reposed  in  good 
bonds  would  make  their  action  necessarily  a  great  hard- 
ship to  many.  But  there  was  no  way  out.  Even  had 
wages  been  reduced  there  did  not,  at  the  time,  appear 
to  be  any  hope  that  profits  for  a  long  time  would  meet 
requirements,  and  the  conservation  of  resources  was 
paramount.    But  wages  were  not  cut.    In  the  early  part 


Later  History.     1907-1915.  213 

of  1915,  with  earnings  running  even  lower  than  in  the 
last  quarter  of  1912,  the  matter  was  considered,  but  a 
slight  increase  in  business  was  seized  upon  as  a  warrant 
for  the  continuance  of  the  old  wage  scale.  The  steel 
worker  was  saved,  although  the  steel  stockholder 
suffered. 

Sales  to  outside  customers  in  1914  totalled  only  $380,- 
228,143;  intercompany  sales  $129,565,729,  and  other  re- 
ceipts made  a  total  of  $558,414,933,  a  decrease  of  over 
$238,000,000  from  the  previous  year.  Ingot  production 
fell  to  11,826,476  tons,  and  finished  steel  output  to  9,014,- 
512  tons,  equal  to  about  62%  of  the  gross  capacity. 
Practically  no  change  was  shown  in  the  bonded  debt, 
which  on  December  31  stood  at  $627,238,417.26.  The 
number  of  employees  averaged  179,353. 

So  acute  was  the  depression  that  it  was  decided  to 
stop  construction  work  at  the  new  Dulnth  plant  in  the 
Fall  of  the  year.  Expenditures  for  this  account  for  1914 
amounted  to  $4,094,363.97. 

In  December,  1914,  production  at  the  corporation's 
plants  fell  to  the  lowest  point  ever  recorded.  The  gen- 
eral average  of  operations  was  reported  to  have  been 
about  25%,  but  this  is  probably  somewhat  overstated, 
as  two  of  the  largest  subsidiaries  reduced  operations  as 
low  as  15%  in  one  case,  and  18%  in  the  other,  during 
the  last  fortnight  of  the  year. 

Never  did  year  dawn  blacker  for  the  steel  trade  than 
did  1915.  The  financial  upset  that  followed  the  outbreak 
of  the  great  war  paralyzed  industry,  and  the  eflfect  was 
felt  in  steel,  the  barometer  of  trade.  Closing  1914  with 
operations  at  the  lowest  point  in  years — perhaps  on 
record — and  with  no  actual  sign  of  early  betterment  it 
was  small  wonder  that  all  except  the  perpetual  opti- 
mists faced  the  future  with  some  dread. 

And  the  events  of  the  early  part  of  the  year  seemed 
to  justify  this  dread.  In  the  month  of  January  the  Steel 
Corporation's  earnings  fell  to  the  lowest  point  on  rec- 
ord $1,687,150.     There  was  a  gradual  picking  up  both 


214        The  United  States  Steel  Corporation 

in  the  rate  of  operations  and  in  earnings  throughout 
the  quarter,  and  by  the  end  of  March  the  big  company's 
plants  were  running  over  60%  of  capacity,  while  earn- 
ings for  March  were  $7,132,081  and  for  the  quarter 
$12,457,809. 

But  the  war  was  destined  to  bring  an  immense 
amount  of  business  to  the  steel  mills  of  the  United 
States,  and  of  Canada  as  well.  As  the  struggle  de- 
veloped the  Allied  powers  had  brought  home  to  them 
their  shortage  of  war  material,  in  which  steel  plays  an 
important  part.  It  was  necessary  for  them  to  purchase 
guns,  shells,  automolibes,  aeroplanes  and  hosts  of  other 
articles  in  all  made  wholly  or  partially  of  steel.  It  had 
become  a  war  of  machines,  and  there  was  nowhere  but 
America  to  supply  these  machines.  First  the  war  de- 
mand made  itself  felt  for  wire.  This  was  natural,  as 
England,  although  an  important  steel  producing  coun- 
try, makes  little  wire  and  has  been  in  the  custom  of 
importing  a  large  part  of  her  needs  of  this  commodity 
from  the  United  States.  Many,  many  miles  of  barbed 
wire  were  needed  for  trench  entanglements,  and  the 
wire  mills  of  the  Steel  Corporation  and  the  other  wire 
producers  here  began  to  increase  output  and  to  show 
better  earnings. 

Then  France  and  England  began  to  buy  shrapnel  steel 
and  Russia  asked  for  a  large  number  of  locomotives  and 
cars,  as  well  as  a  very  heavy  tonnage  of  rails.  All  this 
meant  more  work  for  the  steel  mills.  The  export  steel 
trade  of  the  country  grew  to  unprecedented  proportions. 
The  corporation,  before  the  middle  of  the  year,  was 
sending  abroad  one-third  of  all  the  steel  it  made.  It  will 
be  remembered  that  in  the  best  previous  year  of  export 
trade  foreign  shipments  had  amounted  to  only  18%  of 
the  total  production  of  the  corporation's  mills. 

Domestic  trade,  due  partly  to  the  increasing  shipments 
of  food,  clothing  and  other  goods  to  the  belligerents, 
began  to  pick  up.    Industry  generally  was  reviving  un- 


Later  History.     1907-1915.  215 

der  the  stimulus  of  war  buying.  And  the  steel  trade 
was  benefited  in  this  way  also.  Gradually  a  spirit  of 
optimism  began  to  make  itself  felt.  As  the  trade  bal- 
ance of  the  United  States  reached  and  passed  the  bil- 
lion-dollar mark  the  gloom  that  had  settled  on  the 
minds  of  all  was  dispelled  and  hope  took  its  place. 
Steel  operations  were  increased,  and  by  the  end  of  the 
second  quarter  of  this  year  were  nearly  90%  of  capacity 
for  the  corporation,  while  several  of  the  independent 
companies  were  turning  out  every  ton  of  steel  they 
could  produce.    A  "boom"  was  on. 

Earnings,  naturally,  reflected  the  change.  In  the  sec- 
ond quarter  the  corporation  more  than  doubled  its 
profits  for  the  preceding  three  months,  its  report  for  the 
period  showing  a  net  of  $27,950,055.  In  the  third 
quarter  further  progress  was  made  and  earnings  again 
improved,    being   $38,710,644. 

One  important  effect  of  the  war,  one  that  should  mean 
more  lasting  good  not  to  the  steel  trade  alone,  but  to 
American  industries  generally,  was  the  impetus  it  gave 
to  the  development  of  the  coke  by-product  end  of  the 
industry.  In  one  of  the  earlier  chapters  I  gave  a  brief 
resume  of  the  work  of  the  corporation  in  developing 
coke  by-products.  The  value  of  this  work  came  to  be 
appreciated  only  when  the  war  shut  off  supplies  of  Ger- 
man dyes  and  other  chemicals  derived  from  coal. 

The  by-products  obtained  from  coal  in  the  making  of 
coke  have  many  and  varied  uses.  Cheap  candy  manu- 
facturers owe  their  profits  largely  to  a  judicious  em- 
ployment of  certain  of  them,  but  their  destructive 
powers  do  not  end  there,  for  benzol,  toluol,  xylol  and 
other  by-products  form  the  bases  of  the  most  powerful 
explosives,  and  the  steel  companies,  already  equipped 
with  coke  by-product  plants,  found  it  a  simple  thing  to 
add  the  necessary  plant  for  the  manufacture  of  these 
special  derivations  from  coal.  To-day  they  are  produc- 
ing at  the  rate  of  many  millions  of  gallons  of  such  by- 
products, and  are  making  large  profits  from  their  sale 


216        The  United  States  Steel  Corporation 

to  the  manufacturers  of  explosives,  but  they  are  doing 
at  the  same  time  something  of  far  more  lasting  im- 
portance. 

For  aniline  dyes,  the  fast  colors  in  general  use  to-day, 
are  made  from  these  same  by-products.  These  dyes 
were  previously  obtained  from  Germany,  but  the  stop- 
page of  imports  caused  by  the  war  made  plain  the  ur- 
gency for  the  building  up  of  an  American  dye  industry. 
It  will  take  time  to  establish,  but  this  will  not  be  for 
want  of  raw  material.  By  developing  the  coke  by- 
product industry  the  steel  makers  have  made  possible 
a  dye  industry  in  this  country. 

Great  expectations  were  entertained  during  the  late 
Summer  of  this  year  that  the  corporation's  directors, 
at  their  meeting  in  October,  would  resume  the  pay- 
ment of  dividends  on  the  common  stock.  These  hopes 
were  doomed  to  disappointment,  although  earnings  for 
the  September  quarter,  nearly  $39,000,000,  were  more 
than  sufficient  to  warrant  the  payment.  The  directors, 
however,  were  in  favor  of  the  more  conservative  course. 

Yet  the  stockholders  of  the  big  company  have  every 
reason  to  view  the  immediate  future  with  entire  satis- 
faction. The  corporation's  plants  are  running  full  ca- 
pacity with  output  booked  up  many  months  ahead,  and 
there  is  every  prospect  that  the  demand  will  increase 
rather  than  diminish  during  the  next  six  months  or 
more.  Prices  for  some  time  have  been  on  the  upturn ; 
the  steel  trade  is  experiencing  a  period  of  prosperity 
such  as  it  has  never  before  enjoyed.  Earnings  of  the 
corporation,  as  well  as  of  independent  companies,  are 
approaching  record  figures,  if  indeed,  they  have  not 
already  passed  them,  and  new  high  earnings  should  be 
recorded  in  the  early  months  of   1916. 

The  corporation  is  in  an  exceedingly  strong  financial 
position,  thanks  to  the  attitude  of  its  management  in 
putting  so  large  a  percentage  of  profits  back  into  new 


Later  History.     1907-1915.  217 

construction  over  the  years,  its  works  are  all  in  excel- 
lent shape,  new  plants  are  being  built— the  Duluth  plant 
will  probably  be  running  before  these  lines  are  in  print 
— and  the  outlook  for  the  future,  both  as  to  earnings 
and  dividends,  is  brighter  than  it  has  ever  been  before. 

One  result  of  the  Great  War  has  been  that  no  longer 
must  the  steel  mills  of  the  United  States  compete  at  a 
disadvantage  with  European  manufacturers  for  world 
trade.  The  world  today  is  looking  to  America  for  its 
steel  needs  and  never  before  has  so  overwhelming  a 
foreign  demand  been  known.  The  foothold  that  cir- 
cumstances have  given  our  manufacturers  on  foreign 
markets,  it  is  to  be  hoped,  will  not  be  relinquished  when 
peace  shall  once  more  permit  our  foreign  competitors 
to  reenter  the  field,  and  in  the  new  field  of  business  it 
may  be  considered  certain  that  the  big  corporation  will 
secure  its  fair  share. 

With  a  large  domestic  demand,  with  capacity  opera- 
tions and  rising  prices,  and  finally,  with  a  new  and 
promising  export  business  opening  up,  the  year  1916 
should  dawn  with  particular  brightness  for  stockholders 
of   the   United   States   Steel   Corporation. 


APPENDIX 


STATISTICS 
FINANCIAL  AND  OTHERWISE 


PAST  AND  PRESENT 

PRESIDENTS  OF  PRINCIPAL  CONSTITUENT 

COMPANIES 


^A.  C.  Dinkey,  succeeded  Oct.  1,  1915,  by  H.  D.  Williams, 
Carnegie  Steel  Company. 

E.  J.  BUFFINGTON, 

Illinois  Steel  Company 

^^.   M.   Hagar,   succeeded  by  B.   F.  Affleck, 
Universal  Portland  Cement  Company 

W.  B.  Schiller, 

National  Tube  Company 

E.  W.  Pargny, 

American  Sheet  &  Tin  Plate  Company 

^  W.  P.  Palmer, 

American  Steel  &  Wire  Company 

August  Ziesing, 

American  Bridge  Company 

Daniel  Coolidge, 

The  Lorain  Steel  Company 

G.  G.  Crawford, 

Tennessee  Coal,  Iron  &  Railroad  Company 


220  Appendix 

E.  P.  Thomas, 

United  States  Steel  Products  Company 

Thomas  Lynch,  died  Dec.,  1913,  W.  H.  Clingerman, 
H.  C.  Frick  Coke  Company 

J.  W.  Anawalt, 

United  Supply  Company 
Union  Supply  Company 

W.  J.  Olcott, 

Oliver  Iron  Mining  Company 

J.  H.  Reed, 

Bessemer  &  Lake  Erie  Railroad  Company 
Union  Railroad  Company 
Pittsburgh  &  Conneaut  Dock  Co. 

A.  F.  Banks, 

Elgin,  Joliet  &  Eastern  Railway  Company 

F.  E.  House, 

The  Duluth  &  Iron  Range  Raikoad  Company 

W.  A.  McGonagle, 

Duluth,  Missabe  &  Northern  Railway  Company 

H.  COULBY, 

Pittsburgh  Steamship  Company 

-D.  M.  Clemson, 

Carnegie  Nattiral  Gas  Company 


Appendix 


221 


DIRECTORS,  WITH 

J.  P.  Morgan,  1901-13t 
John  D.  Rockefeller,  1901-04 
Henry  H.  Rogers,  1901-09t 
Charles  M,  Schwab,  1901-04 
•Elbert  H.  Gary,  1901 
•George  W.  Perkins,  1901 
•Edmund  C.  Converse,  1901 
•Percival    Roberts,   Jr.,    1901-02. 

1909 
Francis  H.  Peabody,  1901-04 f 
Charles  Steele,  1901-15 
William  H.  Moore,  1901-15 
Norman  B.  Ream,  1901-15t 
P.  A.  B.  Widener,  1901-15  f 
•James  H.  Reed,  1901 
•Henry  C.  Frick,  1901 
William  Edenborn,  1901-09 
Marshal  Field,  1901-05  f 
•Daniel  G.  Reid,  1901 
John  D.  Rockefeller,  Jr.,  1901-10 
•Alfred  ClifTord,  1901-03.     19  J8 


YEARS  OF  SERVICE 

William  E.  Dodge,  1901-02  f 
Nathaniel  Thayer,  1901-1  It 
Abram  S.  Hewitt,  1901-02  f 
Clement  A.  Griscom,  1901-12t 

•Robert    Bacon,    Apr.    to    Nov., 
1901.     June,  1902-05.     1912 
/'James  Gayley,  1902-08     / 
Henry  Phipps,  1904-14 
W.  E.  Corey,  1903-14 
JohnF.  Dryden,  1903-1  If 

•Robert  Winsor,  1904 

•Thomas  Morrison,  1904-11.  1914 

•George  F.  Baker,  1905 
Marvin  Hughitt,  1906-09 

•J,  P.  Morgan,  Jr.,  1909 

•Samuel  Mather,  1909 

•Henry  Walters,  1910 

•James  A.  Farrell,  1911 
Gardiner  M.  Lane,  1911-14t 

•Thomas  Murray,  1913 

•John  S.  Phipps,  1914 


t  Died. 

•  Present  Director. 


222  Appendix 

PROPERTIES    OWNED 

The  subsidiary  companies  of  the  United  States  Steel 
Corporation  together  own  a  total  of  146  works,  comprising 
the  following  plants: 

STEEL  WORKS  FURNACES 

33  Bessemer  Converters.  125  blast  furnaces. 

298  open  hearth  furnaces. 

ROLLING  MILLS 

45  bloom,  large  billet  and  221  hot  mills. 

slabbing  mills.  14  small  biUet  and  sheet  bar 

9  rail  mills.  mills. 

13  structural  shape  mills.  1 1  sheared  plate  mills. 

77  merchant  mills.  15  skelp  mills. 

9  Universal  plate  mills.  173  sheet,  jobbing  and  plate 

24  wire  rod  miUs.  mills. 

10  piercing  and  rolling  miUs  for  seamless  tubing. 

WIRE  MILLS. 

22  wire  drawing  mills.  15  nail  mills. 

3  spring  works.  5  rope  and  electrical  works. 

16  barbed  and  woven  fence  departments. 

PIPE  AND  TUBE  WORKS. 

52  welding  pipe  furnaces.  3  seamless  tube  miUs. 

GALVANIZING  AND  TINNING. 

30  galvanizing  departments.     8  tinning  departments. 

OT^HER  MILLS  AND  PLANTS. 

14  tin  plate  mills.  20  bridge  and  structural 

4  splice  bar  and  rail  joint  plants. 

shops.  5  spike,  bolt  and  nut  works. 

23  iron,  steel  and  brass  found-     12  sulphate  of  iron  plants. 

ries.  68  warehouses. 

5  cement  plants.  5  departments  for  cold  rolled 

products. 


Appendix 
PROPERTIES   OWNED 


223 


MISCEI4-ANEOUS. 

2  axle  works.  1  frog  and  switch  works. 

5  forge  departments.  2  zinc  smelting  works. 

1  paint  factory.  2  job  works. 

1  shafting  department.  1  eye  bar  works. 

2  puddling  mills.  2  steel  car  wheel  plants. 

1  sulphuric  acid  plant.  1  horse  shoe  department. 

1  general  repair  shop.  3  post  and  gate  departments. 

1  armor  plate  plant.  1  thread  protector  works. 

1  fabricating  dept.  for  power  1  steel  barge  yard, 
transmission  towers. 

Trackage  operated  (standard  gauge)  by  Steel  Corpora- 
tion roads: 

Line  owned 993.30  miles. 

Branches  and  spur  to  mines  and  industries . . .    602.68      " 

Operated  tmder  trackage  rights 365. 12      " 

Second  tracks 403.98      « 

Yard  tracks  and  sidings 1,215.20      " 

Marine  Equipment  Owned  by  U.  S.  Steel  Subsidiary 
Companies. 


Steamers 

Steel  barges. . .  . 
Wooden  barges . 

Tug  boats 

Fire  tugs 

Keg  boats 

Scows 


Ocean. 


Great  Lakes 


72 
21 


Ohio  River. 


2 
71 
40 


224 


Appendix 


COMPARATIVE    PRODUCTION 

Table  showing  percentage  of  total  steel  and  iron  out- 
put of  the  United  States  produced  by  the  U.S.  Steel  Corpora- 
tion, for  1901,  1911  and  1913.  The  figures  for  1901  and 
1911  are  taken  from  the  exhibits  in  the  dissolution  suit  and 
those  for  1913  from  the  report  of  the  American  Iron  &  Steel 
Institute  for  that  year. 


1901 


1911 


1913 


Iron  ore  from  Lake  Superior  ranges . 
Total  iron  ore  produced 


61.6 
45.1 


54.3 
45.8 


50.46* 
46.37 


Bessemer  and  low  phosphorous  pig  iron 

Basic  pig  iron 

Total  basic  and  bessemer  iron 


61.7 
40.3 
58.9 


61.1 
53.4 
57.5 


Foundry  and  other  grades .  . . 
Ferromanganese  and  spiegel , 

Total  blast  f lu-nace  products , 

Steel  ingots  and  castings 


3.4 
65.4 


5.4 
76.3 


80.38 


43.2 


45.4 


45.47 


65.7 


53.9 


53.21 


Steel  rails 

Heavy  structural  shapes 

Plates  and  sheets 

Wire  rods 

Other  rolled  products: 
Merchant  bars 


59.8 

62.2 

64.6 

77.6 

Details 

not 

available 


Skelp 

Hoops,  bands  and  ties 

SpHce  bars 

Rolled  forging  blooms  and  billets . . 

Concrete  bars,  sheet  piHng,  railroad 
ties,  spikes,  chains,  bolt  and  nut 
rods,  horseshoe  bars,  strips  and 

miscellaneous 

Total  other  roUed  products 

Grand  total  finished  iron  and  steel . . 


27.3 
50.1 


56.1 
47.0 
45.7 
64.7 

21.5 

49.0 
64.6 
48.0 
17.8 


35.6 
35.1 

45.7 


55.51 
54.03 
49.13 

58.44 


47.81 


Wire  Nails 

Tin  and  teme  plates . 


65.8 
73.0 


51.4 
60.7 


44.55 
58.64 


*Shipments — Production  not  given. 


Appendix 


225 


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226 


APPENDIX 


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Appendix  227 

EARNINGS  AND  DISTRIBUTION  THEREOF 
SINCE  ORGANIZATION. 

Profits  from  April  1, 1901,  to  November  31, 1914 $  949,473,971 

Deductions,  special  reserves,  etc 27,475,031 

Preferred  dividends  paid  (96X) 370,293,337 

Common  dividends  paid  (42>^%) 216,006,707 

Total  dividends  paid 586,300,044 

Surplus  profits 335,698,895 

Appropriated  for  new  property  and  payment  of 

capital  expenditures 218,694,423 

Charged  off  for  expense  of  conversion  of  preferred 

stock  and  issue  of  10-60  bonds 6,800,000 

Balance  of  profits $  110,204,472 

STATEMENT  OF  UNDIVIDED  SURPLUS 
since  organization  on  April  1,  1901,  and  as  of  Dec.  31,  1914. 

Working  capital  at  organization $  25,000,000 

Balance  of  surplus  accumulated  by  all  companies  to  Dec, 

1914 110,204,472 

Total  undivided  surplus $135,204,472 

Total  bond,  debenture  and  mortgage  debt  in  hands  of  public  at  end  of 
each  year  since  organization: 

1901 $381,909,475 

1902 363,655,459 

1903 553,447,257 

1904 575,146,147 

1905 570,472,264 

1906 564,670,876 

1907 602,320,511 

1908 594,865,534 

1909 607,584,174 

1910 597,136,659 

1911 621,054,300 

1912 643,537,181 

1913 627,366,681 

1914 627,238,417 

UNFILLED  TONNAGES  BY  QUARTERS. 

Year                                 March  31.  June  30.  Sept.  30  Dec.  31 

1902 4,791,993  4,843,007  5,347,523 

1903 5,410,719  4,666,578  3,278,742  3,215,123 

1904 4,136,961  3,192,277  3,027,436  4,696,203 

1905 5,579,560  4,829,655  3,865,377  7,605,086 

1906 7,018,712  6,809,589  7,936,884  8,489,718 

1907 8,043,058  7,603,878  6,425,000  4,624,553 

1908 3,765,343  3,313,876  3,421,977  3,603,527 

1909 3,542,595  4,057,939  4,796,833  5,927,031 

1910 5,402,514  4,257,794  3,158,106  2,674,757 

1911 3,447,301  3,361,058  3,611,317  5,084,761 

1912 5,304,841  5,807,346  6,551,507  7,932,160 

1913 7,468,956  5,807,317  5,003,785  4,282,148 

1914 4,653,825  4,032,857  3,787,667  3,836,643 

1915 4,255,749  4,678,196  5,317,618  7,806,220 


228 


Appendix 


EXPORTS  OF  THE  U.  S.  STEEL  CORPORATION. 
Year  Gross  Tons 

1902 275,833 

1903 350,824 

1904 1,001,716 

1905 928,899 

1906 1,049,717 

1907 985,041 

1908 775,345 

1909 985,474 

1910 1,195,465 

1911 1,708,487 

1912 2,243,138 

1913 1,813,072 

1914 1,144,214 


RANGE  OF  STOCK  PRICES. 
Preferred 

High  Low 

1901 107>^  69 

1902 97><  79 

1903 89><  49K 

1904 95>i  51>^ 

1905 107  90K 

1906 113K'  98H 

1907 107K  79J4 

1908 114>^  78K 

1909 131  107 

1910 125H  llOK 

1911 120>g  103 

1912 117  107 

1913 110^  102>^ 

1914 112K  103X 

1915 117  102 


Common 


High 

55 

46K 

39J4 

33J4 

43K 

50K 

50H 
58K 
94>^ 
91 

SOH 

67>< 
89>^ 


Low 

24 

29K 
10 

8H 
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32>i 
21>^ 
25^ 
41K 
61  >^ 
50 

58^ 
49^ 
48 
38 


EMPLOYES  AND  PAYROLL. 

Year  ending  Number  Total  Average 

December  31st  Employes  Pay  Rolls           Yearly  Wage 

1902 168,127  $120,528,343  $716.88 

1903 167,709  120,763,896  720.08 

1904 147,343  99,778,276  677.18 

1905 180,158  128,052,955  710.78 

1906 202,457  147,765,540  729.86 

1907 210,180  160,825,822  765.18 

1908 165,211  120,510,829  729.44 

1909 195,500  151,663,394  775.77 

1910 218,435  174,955,139  800.95 

1911 196,888  161,419,031  819.85 

1912 221,025  189,351,602  856.70 

1913 228,906  207,206,176  905.20 

1914 179,353  162,376,907  905.36 


Appendix 


229 


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i,l|!ii,,,,'';^;*;!,v';-'*'-'/.'^L  LIBRARY 


fACILITY 


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